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State’s Right to Levy Tax on Mineral Rights
Context:
The Supreme Court, in a decision by a 9-judge constitution bench with an 8:1 majority, ruled that states have the authority to levy taxes on mineral rights.
The judgement clarified that the Union law, the Mines and Minerals (Development and Regulation) Act of 1957(MMDR Act 1957), does not limit this power of the states.
More in News:
- The majority verdict given in Mineral Area Development Authority Etc vs M/S Steel Authority Of India & Ors (2011) ,overruled the 1989 decision of a 7-judge Bench in India Cement Ltd vs State of Tamil Nadu(1989)
- which said royalty is tax and state legislatures lack competence to levy taxes on mineral rights because the subject matter is covered by the MMDR Act, 1957, enacted by Parliament in exercise of powers under Entry 54 of List I (Union List) of the Constitution.
- The majority ruling said royalty, as envisaged under Section 9 of the 1957 Act, “is not in the nature of tax”.
Constitutional Provision under Schedule VII
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Royalty vs Tax
- Royalties are based on specific contracts or agreements between the mining leaseholder and the lessor (the person who leases the property) who can even be a private party.
- Also, taxes are meant for public purposes such as welfare schemes and creating public infrastructure, whereas the payment of royalties is to a lessor in exchange “for parting with their exclusive privileges in the minerals.
Definition of minerals
As per MMDR Act
- “minerals” includes all minerals except mineral oils.
- “mineral oils” includes natural gas and petroleum.
Major and Minor minerals
- Major Minerals under the MMDR Act
- Major minerals are specified in the first schedule of the MMDR Act 1957.
- Common major minerals include lignite, coal, uranium, iron ore, gold, etc.
- There is no official definition for “major minerals” in the MMDR Act.
- Minerals not declared as “minor minerals” are treated as major minerals.
- Minor minerals
- Means building stones, gravel, ordinary clay, ordinary sand other than sand used for prescribed purposes, and any other mineral which the Central Government may declare to be a minor mineral.
- The Indian Bureau of Mines added 31 minor minerals to the list of minor minerals in 2015 , e.g. Barytes, Calcite , Feldspar, Dolomite, Granite etc.
Majority verdict:
- Royalty is not within the nature of a tax Entry 54 of List 1(Union list) is a regulatory entry dealing with the regulation and development of mines and minerals.
- Regulatory entries are distinct from taxing entries.
- Entry 54 of List 1, being a general entry, does not include the power of taxation of the Union.
- Under Entry 50 List II the legislative power to tax mineral rights vests with the state legislatures.
- State legislatures have legislative competence under Article 246 read with Entry 49 of List 2 to tax land which comprises mines and quarries. containing minerals.
- Mineral-bearing lands fall within the description of ‘lands’ in Entry 49.
- Since the power to tax mineral rights is enumerated in Entry 50 of List 2, Parliament cannot use its residuary power with respect to that subject matter.
- Entry 50 of List 2 envisages that the Parliament can impose any limitations on the legislative field of the States through a law relating to mineral development.
- The MMDR Act, as it stands, does not impose any such limitations.
- Any dilution in the taxing powers of the State legislatures will necessarily impact their ability to raise revenues, which in turn will impede their ability to deliver welfare schemes and services to the people.
- The ability of the State governments to invest in physical infrastructure, health, education, human capacity, and research and development is directly correlated to the raising of government revenue.
- The taxing power to the state will benefit mineral-rich States such as Chhattisgarh, Jharkhand and Odisha who continue to have per capita income below the national average.
Dissent view:
- Justice B.V. Nagarathna said the States’ power to tax under Entry 49 of List II did not include “mineral-bearing lands” and royalty is in the nature of a ‘tax’ .
- Taxing powers of a State legislature were subjected to limitations imposed by Parliament by law relating to mineral development.
- Allowing states to impose taxes on minerals would lead to unhealthy competition among states to derive additional revenue and consequently, the steep uncoordinated and uneven increase in cost of minerals which can possibly result in the erosion of the federal system.
- Parliament would have to again step in to bring about a uniformity in the prices of minerals and in the interest of mineral development so as to curb the states from imposing levies, taxes, etc. on mineral rights.
Steps taken by the government to promote mines & mineral development:
- The MMDR Act 2015 was amended to create District Mineral Foundation (DMF)
- The District Mineral Foundation (DMF) is a Trust and non-profit body established in districts affected by mining, as mandated by the MMRDA, 2015.
- Operated by the state government, it is funded through contributions from miners.
- It implements the PM Khanij Kshetriya Kalyan Yojana, 2015 for the welfare of areas and people affected by mining.
- Budget 2024-25 has the following provisions for the development of critical minerals.
- Critical Mineral Mission to be set up for domestic production, recycling of critical minerals, and overseas acquisition of critical mineral assets.
Fully exempt 25 critical minerals from custom duties and reduce basic custom duties (BCD) on two of them eg. Antimony, Beryllium, Bismuth, Cobalt, Copper, Gallium, Germanium.
