[Breaking]‘Undue Burden On Ordinary Citizens, Ignores Macro-Economic Impact’: Centre Seeks Review Of SC’s 8:1 Ruling Upholding Power Of States To Tax Minerals

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Government sought a review, states “The retrospective application of the judgment may result in the common man facing the financial strain of significant dues imposed on the entire sector. This could be highly damaging to the nation’s economic health and place an undue burden on ordinary citizens.”

[Breaking]‘Ignores Macro-Economic Impact’: Centre Seeks Review of Supreme Court’s 8:1 Ruling Upholding Power of States to Tax Minerals

NEW DELHI: The Centre has requested today (12th Sept) the Supreme Court to reconsider its July 25 ruling, where an 8:1 majority confirmed that states have the authority to impose royalties on mineral extraction from their land and to tax the lands containing mines and quarries.

Additionally, the Government sought a review of the Supreme Court’s August 14, 2024, decision, which granted a limited retrospective application to the July 25 judgment, permitting states to recover tax arrears from April 1, 2005, onwards without applying interest or penalties.

It stated, “The retrospective application of the judgment may result in the common man facing the financial strain of significant dues imposed on the entire sector. This could be highly damaging to the nation’s economic health and place an undue burden on ordinary citizens.”

July 25 judgment

On July 25, Chief Justice of India D Y Chandrachud delivered the majority verdict, supported by Justices Hrishikesh Roy, A S Oka, J B Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih. This verdict set aside the 1989 ruling of a seven-judge Bench in India Cement Ltd vs State of Tamil Nadu, which had established that royalty is a tax and that state legislatures did not have the authority to impose taxes on mineral rights due to the Mines and Minerals (Development and Regulation) Act, 1957, being under Parliament’s jurisdiction according to Entry 54 of List I (Union List) of the Constitution.

In her dissent, Justice B V Nagarathna warned that set aside the India Cement decision could lead to a “breakdown of the federal system” and spur “unhealthy competition” among states.

In seeking a review of the July 25 decision, the Centre argued that the judgment overlooks the macroeconomic significance of minerals as a key resource for core sectors of the economy, describing this oversight as an “error apparent on the face of the record.”

The Centre also challenged the Supreme Court’s interpretation that the term “land” in Entry 49 of List II (State List) encompasses all types of land, including mineral-bearing land. It contended that adopting this interpretation could undermine the entire constitutional federal framework regarding minerals.

The Centre argued that “Entry 49 List II pertains solely to the surface of the land where buildings can be erected, not to the subsurface” and “cannot be used to impose levies on minerals.”

Requesting an open court hearing for the review petitions, the Centre noted that “many industries crucial to infrastructure (such as power, steel, cement, aluminum, etc.) rely heavily on minerals like coal, iron ore, bauxite, and limestone. Thus, industrial growth across states depends on mineral resources available only in a few states.”

It further warned that any tax imposed by state governments on mineral-bearing land could severely disrupt the country’s fiscal stability.

“Such taxes would hinder economic integration and prompt states to levy excessive or variable taxes based on the value of minerals extracted, potentially leading to the closure of mines.”

The Centre warned that if states rich in mineral resources like coal begin imposing various taxes, it could severely impact power supplies in other states. Similarly, if states with significant iron ore reserves, crucial for national development, start taxing iron ore production, it could affect iron and steel production across the country.

The plea highlighted that these concerns were not addressed in the constitutional framework discussed in the judgment.

It argued that state-level taxes on mineral rights could lead to higher mineral commodity prices in India.

“If a state with substantial mineral reserves imposes a high tax rate, it could not only disrupt the market for that mineral but also have a cascading impact on related industries,”

it said.

The Centre emphasized the need for a uniform national system of mineral levies that serves the “public interest.” It asserted that since mineral resources are concentrated in a few states but vital for industrial and economic development nationwide, their extraction and management should align with national goals to ensure sustained economic growth.

The Centre noted that the Mineral Laws (Amendment) Act (MMDRA) was enacted to place major mineral regulation and development under Union control, reflecting Parliament’s intent to act in the public interest.

The Union of India, according to the MMDRA, is responsible for promoting national public interest by ensuring uniform mineral development and economic growth across the country through standardized pricing, rather than fostering localized growth in mineral-rich areas.

The plea argued that a consistent royalty system set by the Union under Section 9 of the MMDRA aligns with the National Mineral Policy of 2019 by harmonizing prices and advancing its goals.

It noted that differing cesses and taxes across states, which lead to varying mineral prices, would undermine these policy goals and act against public interest by impeding mineral development.

The Centre contended that a non-uniform fiscal system with varying levies would disadvantage industries in states with fewer mineral resources, forcing them to buy minerals at higher prices from resource-rich states, thus giving an economic edge to those states at the expense of national development.