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States have the legislative competence to impose taxes on mining, the Supreme Court ruled on July 25 according to media reports. This has effectively brought the debate on the issue of taxing minerals between the Centre and the states to an end.
The apex court bench, led by Chief Justice of India DY Chandrachud, also established that the royalty paid for mining by the lessee to the lessor (state) is not to be classified as ‘tax’.
Earlier, the Centre held that it had the legislative authority to tax mineral rights under Entry 54 of List 1 of the Constitution.
However, the Supreme Court clarified that since the power to tax mineral rights is enumerated in Entry 50 of List 2, Parliament cannot use its legislative powers to impose taxes on mining in the respective states.
Explaining the rationale for not classifying royalty as tax, the apex court stated that it is a contractual consideration paid by the lessee to the lessor under the mining lease. It explained that both royalty and dead rent do not fulfil the characteristics of tax.
The ruling came as a relief for states, amid their growing differences with the Centre on different perceptions of the federal structure.
The Supreme Court bench consisted of nine judges which ruled in the favour of the states, except for one judge who registered her note of dissent.
Justice BV Nagarathna, disagreeing with her peers, held that royalty is technically a tax. Hence, according to her, the states cannot levy taxes on minerals.
According to media reports, Justice Nagarathna opined that allowing states to impose taxes on minerals would lead to a crisis of uniformity on national resources.
She held that this could also lead to unhealthy competition among states, which can possibly result in the erosion of the federal system.