Parliament have legislative competence to limit taxing power of states on mineral rights SC

    New Delhi, Jul 25 (PTI) The Supreme Court's 8:1 majority judgement holding that states have the legislative competence to tax mineral rights notwithstanding, Parliament can limit that power of states to ensure unhindered mineral development in the country.
    A nine-judge bench headed by Chief Justice DY Chandrachud said the authority to impose a tax on mineral rights remains with the states but is subject to the limitations envisaged by a law enacted by Parliament for mineral development.
    "Parliament can determine whether, and if so, how the taxing power of the states over mineral rights should be limited in order to ensure that it does not impede or retard mineral development. If Parliament does so and indicates the nature of the limitations, the states are bound to abide by them while exercising the taxing power over mineral rights," it said.
    The bench, also comprising Justices Hrishikesh Roy, Abhay S Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih said under Entry 23 of List II of the seventh schedule of the Constitution, the regulatory power of the state is denuded by Parliament, while in case of Entry 50 of List II, the legislative field assigned to the states to tax mineral rights is only limited.
    Entry 23 of List II deals with regulation of mines and mineral development by the states, while Entry 50 of List II deals with taxing powers of the states on mineral rights.
    "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 bench said.
    It added that the ability of the state governments to invest in physical infrastructure, health, education, human capacity, and research and development is directly correlated to raising government revenues.
    "Constitutional courts have to be cognizant of this context while adjudicating on issues affecting the taxing powers of the State legislatures,” it observed. It said the natural meaning of the expression “mineral rights” will include the entire bundle of rights that follow ownership of minerals, including rights which can be transferred to a lessee through a mining lease.
    "The Constitution is a living organic document and must be interpreted in that spirit…The expression “mineral rights” must be construed in this spirit to ensure that the taxing powers of the State under Entry 50 of List II are not unnecessarily curtailed,” the bench added.
    It said the breadth and scope of mineral rights has also been recognised under the Mines and Minerals (Development and Regulation) Act (MMDRA), and in a situation where the minerals vest with the state by operation of law, the right to those minerals also vests with the state.
    The bench said while the imposition of taxes on mineral rights is a field exclusively entrusted to the state legislatures in the State List, Parliament can, while making provisions in a law relating to mineral development, make provisions which ensure that the exercise of the taxing power by the states does not adversely affect the development of minerals.
    The top court said Parliament also does not have legislative competence to tax mineral rights under Entry 54 of List I of the Constitution by exercising its residuary powers under Article 248.
    Article 248 of the Constitution says that the residuary powers of Parliament shall include the power of making any law imposing a tax not mentioned in either the State list or Concurrent List.
    CJI Chandrachud, who penned the verdict on behalf of the bench, said in a federal form of government, each federal unit should be able to perform its core constitutional functions with a certain degree of independence.
    "The Constitution has to be interpreted in a manner which does not dilute the federal character of our constitutional scheme. The effort of the constitutional court should be to ensure that State legislatures are not subordinated to the Union in the areas exclusively reserved for them," the 200 page-majority verdict said.
    Justice Nagarathna, who dissented from the majority view, however, concurred with the CJI that scope of the expression "any limitations" under Entry 50 of List II is wide enough to include imposition of restriction, conditions, principles as well as a prohibition by Parliament by law.

(This story has not been edited by THE WEEK and is auto-generated from PTI)