Supreme Court allows states to tax mineral rights and mineral-bearing lands

Source: The post Supreme Court allows states to tax mineral rights and mineral-bearing lands has been created, based on the article “Fiscal federalism: The ruling on taxing mineral rights opens up resource avenue for States” published in “The Hindu” on 27th July 2024

UPSC Syllabus Topic: GS Paper2-polity-federalism

Context: The article discusses a Supreme Court ruling that allows states to tax mineral rights and mineral-bearing lands. This decision strengthens states’ legislative powers. However, there’s concern it could lead to uneven mineral costs and increased industrial product prices.

For detailed information on SC verdict on state’s power to tax mining activities read this article here

What Was the Supreme Court’s Ruling?

1. The Supreme Court ruled 8:1 that states can tax mineral rights and mineral-bearing lands.
2. Chief Justice Dr. D.Y. Chandrachud found no limitation in the 1957 Act. The Court saw royalty as a contractual consideration, not a tax. States could tax mineral-bearing lands under Entry 49, a general power to tax lands.

Why Is This Ruling Significant?

1. Strengthens States’ Power: The ruling reinforces states’ legislative authority to tax mineral rights and lands, protecting it from Parliament’s interference. Previously, entry 50 in the State List allowed states to tax mineral rights but was thought to be limited by Parliament’s law.
2. Clarifies Taxation Limits: It clarifies that the Mines and Minerals (Development and Regulation) Act, 1957, does not limit states’ taxation powers.
3. New Revenue Avenue: States gain a new taxation avenue, aiding their ability to fund welfare schemes and services.
4. Royalty Clarification: The Court determined that royalty is not a tax but a contractual consideration, allowing states more freedom in taxation.
5. Supports Fiscal Federalism: This decision promotes fiscal federalism and state autonomy in financial matters.

What Are the Concerns About This Ruling?

1. Unhealthy Competition: Justice B.V. Nagarathna’s dissent warns of states entering unhealthy competition to derive revenue.
2. Increased Costs: This could lead to uneven and uncoordinated spikes in mineral costs, affecting purchasers. Higher mineral costs may result in increased prices for industrial products.
3. Market Exploitation: There is a risk of the national market being exploited for arbitrage.
4. Future Amendments: The Centre might amend the law to limit or prohibit states from taxing mineral rights, potentially leaving mining activities untaxed.

Question for practice:

Examine how the recent Supreme Court ruling on state taxation of mineral rights and lands impacts fiscal federalism and state autonomy in financial matters.