On the fifth day of hearings, the Supreme Court discussed whether royalties are like taxes and if state governments can tax minerals based on their value. They focused on the difference between royalties, which are payments for the right to extract minerals, and taxes on the value of minerals. This difference is important for deciding if state taxes on mining are constitutional.
NEW DELHI: On March 6, the Supreme Court proceeded with the 9-Judge Constitution Bench case regarding royalties imposed on mining. During its fifth day, the Court focused on crucial issues concerning the taxation of land and mineral rights, questioning the differentiation between Entry 49 and Entry 50 in List II of the Indian Constitution.
The Mines and Minerals (Development and Regulation) Act, 1957, enacted by the Union Government, requires mining lease holders to pay royalties to the Union Government for minerals extracted from the leased area.
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In 1963, Tamil Nadu granted a mining lease to India Cement Ltd., setting royalty rates under the Mines Act. They also imposed a cess on land revenue paid to the Union Government.
India Cement challenged this in the Madras High Court but lost. They then appealed to the Supreme Court. In 1989, the Supreme Court ruled that royalty was like a tax, and states couldn’t impose cess on it.
In 2004, the Supreme Court recognized a clerical error in the India Cement case, clarifying that royalty wasn’t exactly a tax. Meanwhile, another case challenged Bihar’s coal mining laws, leading to a significant constitutional discussion.
Senior Advocate Harish Salve concluded his arguments today after three days of intense discussion.
He emphasized
How the Mines and Minerals (Development and Regulation) Act, 1957, limits the state’s power to tax by treating royalty as akin to tax. Salve also explained how Entry 49 of the State List allows states to collect taxes on “land and buildings.”
Salve highlighted
How the Mines Act restricts state taxation powers under Entry 50 of the State List. He argued that Entry 49 doesn’t allow states to tax mineral lands.
Salve contended that
The Mines Act, 1957, effectively leaves no room for the state government to legislate further. Chief Justice D.Y. Chandrachud emphasized that although Entry 54 of the Union List grants the Union government control over mines and minerals regulation, it doesn’t encompass the entire domain.
According to Section 2 of the Mines Act, 1957, the statute’s jurisdiction is limited to the development and regulation of mines within a specified scope. CJI Chandrachud clarified that the scope delineated by Parliament is only a segment of the overall jurisdiction regarding mines and minerals regulation, leaving other aspects within the purview of state governments.
During the hearings, the Chief consistently highlighted the absence of a specific provision allowing the state government’s taxation powers to be weakened.
Salve countered by asserting
That Parliament possesses the authority to control mineral development comprehensively. He likened this authority to having the ability to take either the whole or a portion of the regulatory “cake.”
Salve clarified
That royalties, although not akin to taxes in the conventional sense, are statutory obligations that cannot be altered by state governments. He also emphasized that the Mines Act treats states as representatives of the central government, subjecting them to various terms and conditions. Additionally, Salve pointed out that the rights between landowners and leaseholders are exhaustive, meaning that state governments, as landowners, cannot impose additional conditions when granting mining leases to private individuals.
On the second day of proceedings, Senior Advocate Rakesh Dwivedi argued that state governments have the authority to levy taxes on mineral land under Entry 49 of the State List. This tax would be based on the assessed “mineral value.”
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Dwivedi explained that “mineral rights,” which encompass activities like drilling, extracting minerals, and selling them, are integral to determining mineral value. As these activities occur on mineral land, he asserted that states are empowered to impose taxes under Entry 49. However, Salve disagreed today, arguing that Entry 49 does not pertain to taxing “mineral rights.”
He contended that “mineral rights” and mineral land are distinct concepts, with Entry 50 specifically separated from taxes collected on land.
According to Salve, mineral rights stand alone, lacking a legal connection between extracted minerals and the land’s value. He used the analogy of aircraft parking to illustrate his point, stating that the value of an aircraft doesn’t increase the value of the land it’s parked on. Dwivedi had previously emphasized that taxing mineral land is permissible because minerals are inherent to the land, not merely adjacent to it.
Salve also addressed past cases, like Anant Mills Co Ltd v State of Gujarat (1975) and Laxminarayana Mining Co Bangalore v Taluka Dev. Board (1972), to support the court’s interpretation that “royalty is a tax.”
