TAG: GS 3: ECONOMY
THE CONTEXT: The Supreme Court, through a nine-judge constitution bench led by Chief Justice, has delved into a crucial legal issue regarding the taxation of mineral rights.
EXPLANATION:
- The central question revolves around whether the royalty collected by the Centre on mining leases qualifies as a tax.
- The court emphasized the pivotal role of states in exercising the power to impose taxes on mineral rights.
- The Constitution, according to the Supreme Court, explicitly designates the authority to impose taxes on mineral rights to states, not Parliament.
- The bench highlighted the need to preserve and not dilute this authority, emphasizing that Parliament’s role is limited to imposing certain limitations to ensure smooth mineral development without obstructing the states’ taxing power.
- The court scrutinized Entry 50 of List 2 of the 7th Schedule of the Constitution, emphasizing that while Parliament can impose restrictions, it lacks the power to impose taxes on mineral rights.
- The Chief Justice pointed out that the power to impose taxes is exclusively given to the states.
- The distinction between regulating mineral development and taxing mineral rights is crucial to understanding the constitutional framework.
States’ Taxing Power and Critical Distinctions:
- The court asserted that the power to impose taxes on mineral rights remains solely with the states, highlighting the limited areas under the Constitution where states possess taxing power.
- This distinction is deemed critical to ensuring the preservation of states’ authority in matters related to taxation, particularly in areas like mineral rights.
Attorney General’s Position:
- The Attorney General (AG) contended that activities related to minerals, from birth to the completion of mineral activities, fall under mineral rights.
- However, the AG suggested a nuanced reading of Entry 50, stating that while there is no explicit power to tax mineral rights, Parliament can impose limitations related to mineral development.
- The hearing remains inconclusive.
- The court sought clarity from the AG on whether Parliament can unequivocally impose a tax on mineral rights. The AG’s response is awaited, and the proceedings are set to resume on March 5.
Historical Context:
- The legal dispute stems from a 1989 verdict that considered royalty on minerals as a tax.
- Subsequent conflicting rulings, including a 2004 decision, led to the current deliberation by a nine-judge bench.
- The court is addressing 86 appeals filed by mining entities, public sector undertakings, and state governments, seeking resolution and clarity on the taxation of mineral rights.
- The outcome of this legal battle will have significant implications for mineral development in India.
- Balancing the regulatory framework while safeguarding states’ taxing powers is essential to fostering a conducive environment for both economic development and resource conservation.