POWER OF STATES TO TAX MINING ACTIVITIES
In addressing a significant case pertaining to the taxation of mineral rights, the Indian Supreme Court reversed its 1989 decision and upheld the authority of the states in this regard.
This ruling, rendered by a nine-judge bench, makes it clear how much power the states and Parliament have over revenues from minerals.
Background of the Case:
1989 Ruling: A seven-judge Bench determined that the central government had primary authority over mining regulation under the Mines and Minerals (Development and Regulation) Act, 1957, and Entry 54 of the Union List.
State Authority: States could only collect royalties and were not allowed to impose additional taxes. Royalties were classified as taxes, barring any additional cess by states.
2004 Ruling: A five-judge Bench suggested a possible typographical error in the 1989 ruling, indicating that royalties might not be classified as taxes, leading to the current nine-judge review.
Overturning 1989 Verdict:
Current Ruling: The nine-judge Bench overturned the 1989 decision, stating that classifying royalties on minerals as a tax was incorrect.
State vs. Central Authority:
The Court affirmed that the power to impose taxes on mineral rights resides solely with the states.
Parliament can only impose limitations to prevent hindrances to mineral development but cannot directly tax mineral rights.
Under Entry 50 of List II, Parliament does not have the power to tax mineral rights; it can only impose constraints to ensure smooth mineral development.
Dissenting Opinion:
Justice B.V. Nagarathna provided a dissenting opinion. Allowing states to tax mineral rights might lead to attempts to tax lands and buildings under Entry 49 of List II, disrupting the federal system.
Uniformity Concerns: This could lead to inconsistencies in mineral pricing and development.
Economic Impact: There is concern that states imposing taxes on mineral rights could result in legal uncertainties and negative economic consequences, affecting metal development in India.
Parliament’s Intervention: It was suggested that Parliament may need to intervene to maintain uniformity in mineral pricing and development and prevent states from imposing additional taxes on mineral rights.
Difference Between Royalty and Tax
Royalty:
Origin: Arises from an agreement between parties.
Nature: Compensation for rights or privileges granted to the grantee.
Directly linked to the benefit or privilege conferred upon the grantee.
Context: Specific to agreements often related to resource exploitation or usage of granted privileges.
Legal Precedents: Hingir-Rampur Coal Co. Ltd. vs. State of Orissa (1961), State of West Bengal vs. Kesoram Industries Ltd. (2004), and others, establishing royalties as contractual obligations with direct benefits.
Tax:
Origin: Imposed under statutory power, not based on any specific benefit.
Nature: Enforced by law for public purposes, without requiring the taxpayer’s consent.
Does not involve a direct quid pro quo arrangement; a common burden shared by all citizens.
Context: Mandatory payment not linked to any particular privilege or benefit.
Legal Precedents: State of Himachal Pradesh vs. Gujarat Ambuja Cement Ltd. (2005), Jindal Stainless Ltd. vs. State of Haryana (2017), highlighting taxes as statutory obligations without direct benefits.
Despite opposing concerns about double taxation, the Supreme Court's decision upholds the right of the states to tax mining sites without reference to the MMDR Act, emphasizing their authority under Article 246 and Entry 49.
