Supreme Court of India on Taxation of Mineral Rights| Ias Banenge

Context:

The Supreme Court of India has recently addressed a crucial issue regarding the taxation of mineral rights, overturning its 1989 verdict and reaffirming the power of states in this context. This decision, delivered by a nine-judge Bench, clarifies the extent of authority both Parliament and states hold over mineral royalties. This landmark ruling will have significant implications for the distribution of mineral wealth and the financial autonomy of states.

Relevance:

GS II: Polity and Governance

READ MORE-UPSC Mains Questions Keywords – Discuss, Explain, Analyse, Examine, Evaluate etc

Dimensions of the Article:

1. Supreme Court Decisions on Mining Regulation and Taxation
2. Difference Between Royalty and Tax
3. Mines and Minerals (Development and Regulation) Act, 1957

Supreme Court Decisions on Mining Regulation and Taxation

1989 Supreme Court Ruling:

• Authority on Mining Regulation: The seven-judge Bench ruled that the Central Government holds primary authority over mining regulation under the Mines and Minerals (Development and Regulation) Act, 1957, and Entry 54 of the Union List.
• State Powers: States were restricted to collecting royalties but were not permitted to impose additional taxes. Royalties were classified as taxes, thus any cess beyond the authority of the state was deemed invalid.

2004 Review and Current Verdict:

• Typographical Error: A five-judge Bench suggested a typographical error in the 1989 ruling, hinting that royalties might not be classified as taxes.
• Nine-Judge Bench Ruling: The Supreme Court’s nine-judge Bench overruled the 1989 decision, clarifying that royalties on minerals are not taxes under the MMDRA, 1957.
  • Taxation Authority: The Court emphasized that the power to levy taxes on mineral rights resides with the states. Parliament can impose restrictions to prevent interference with mineral development but cannot directly tax mineral rights.
  • Parliamentary Constraints: While Parliament can set constraints to ensure mineral development is not obstructed, it cannot impose taxes on mineral rights directly.
  • Federal System and Uniformity: Allowing states to impose taxes on mineral rights could disrupt the federal system and lead to inconsistencies in mineral pricing and development. This could adversely affect metal development in India.

Difference Between Royalty and Tax

Royalty:

• Nature: Originates from an agreement between parties, compensating for rights and privileges.
• Relationship: Linked to the benefit or privilege granted by the grantor, often tied to the exploitation of resources.
• Legal Precedents: The Supreme Court in cases like Hingir-Rampur Coal Co. Ltd. vs. State of Orissa (1961) and State of West Bengal vs. Kesoram Industries Ltd. (2004) established royalties as contractual obligations with direct benefits.

Tax:

• Nature: Imposed under statutory power without a direct benefit to the payer. Enforced by law, it does not require consent.
• Purpose: Collected for public purposes and is part of the common burden borne by all citizens, not linked to any specific privilege or benefit.
• Legal Precedents: Cases such as State of Himachal Pradesh vs. Gujarat Ambuja Cement Ltd. (2005) and Jindal Stainless Ltd. vs. State of Haryana (2017) highlight taxes as mandatory payments not tied to any specific benefit.

Implications

• For States: States can levy taxes on mineral rights, leading to potential legal uncertainty and economic impacts.
• For Parliament: Needs to ensure uniform mineral pricing and development interests while preventing states from overstepping their taxation authority.

Mines and Minerals (Development and Regulation) Act, 1957

Overview:

• Purpose: The Mines and Minerals (Development and Regulation) Act, 1957, is a crucial piece of legislation governing the mining sector in India. It aims to ensure the development of the mining industry, conservation of minerals, and enhanced transparency and efficiency in mineral exploitation.
• Scope: The Act has undergone multiple amendments to address evolving needs and challenges in the sector, aligning with national economic and security interests.

Key Amendments:

2015 Amendment:

• Auction Method: Introduced mandatory auctioning of mineral concessions to increase transparency in the allocation process.
• District Mineral Foundation (DMF): Established DMFs to channel benefits to areas and communities affected by mining activities.
• National Mineral Exploration Trust (NMET): Created NMET to support and boost mineral exploration activities.
• Penalties for Illegal Mining: Imposed stringent penalties to combat illegal mining practices.

2016 and 2020 Amendments:

• Purpose: Addressed specific sectoral issues to ensure the efficient functioning of the mining industry.

2021 Amendment:

• Captive and Merchant Mines:
  • Captive Mines: Operated by companies for their own use, with the flexibility to sell up to 50% of the annual production in the open market after meeting the needs of their end-use plants.
  • Merchant Mines: Operated to sell extracted minerals in the open market to various buyers, including industries without their own mining operations.
• Auction-Only Concessions: Ensured that all private-sector mineral concessions are granted exclusively through auctions.

2023 Amendment:

• Critical Minerals:
  • Removal of Restrictions: Removed six minerals from the list of twelve atomic minerals restricted to exploration by State agencies.
  • Exclusive Auctioning: Empowered the government to auction mineral concessions specifically for critical minerals.
  • Exploration Licences: Introduced licenses to attract foreign direct investment and engage junior mining companies in exploring deep-seated and critical minerals.
• Focus Areas:
  • Encouraging Private Sector: Aimed at reducing import dependency and expediting exploration and mining of critical minerals.
  • Future Technologies: Recognized the significance of minerals like lithium, graphite, cobalt, titanium, and rare earth elements for advancing technologies and India’s energy transition goals, including the commitment to achieve net-zero emissions by 2070.

-Source: Indian Express

---