States denuded of power to levy tax on minerals by virtue of MMDR: SC told

The states are denuded of power to levy taxes on mines and minerals under the Constitution as the field is taken over by the Centre by virtue of the Mines and Minerals (Development and Regulation) Act, the Supreme Court was told on Wednesday.

A nine-judge bench headed by Chief Justice DY Chandrachud was told by senior advocate Abhishek Singhvi, appearing for mining companies, that the 1989 verdict in India Cements case which held that royalty is tax is correct in law.

"... once the field of mining and levies including taxes on mining are taken over by the Centre (which they in fact are, by virtue of the MMDR Act, 1957 as confirmed in Orissa Cement (1990 verdict) and Mahanadi Coalfields (1994 verdict)), the states stand denuded of their powers under both Entries 23 as well as 50 of List 2," he said.

The bench, also comprising Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, is considering the contentious question as to whether the royalty collected by the Centre on mining leases can be considered as tax, as held by a seven-judge bench in 1989.

The top court has been interpreting the interplay between various entries provided for under the Constitution related to mines and minerals.

The senior counsel said the entire field relating to regulation of mines and mineral development and tax on mineral rights has been "taken over" by Parliament by virtue of the declaration under the Mines and Minerals (Development and Regulation) Act (MMDRA), 1957 that leads to complete denudation of states' legislative power under Entry 23, List 2.

Entry 23 of List 2 of the 7th Schedule (state list) relates to, "Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union."

The CJI told Singhvi that Parliament can impose limitations, as is evident from the entries, but how do states get stripped of their taxing powers provided for under Entry 50 of List 2.

Entry 50 of List 2 talks about "taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development".

Singhvi said Entry 50 of List 2 itself recognises parliamentary limitation of taxation of mineral rights, which limitation has been fully exercised and manifested by parliamentary legislation traceable to and justifiable under a conjoint reading of Entry 54 of List 1 read with Entry 97 of List 1.

Entry 54 of List 1 of the 7th Schedule (union list) talks about "regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest".

Entry 97 of List 1 says, "Any other matter not enumerated in List 2 or List 3 (concurrent list) including any tax not mentioned in either of those Lists."

"The clear and unambiguous feature of this sui generis (unique) and complete code is that the Centre has completely taken over the field of both regulation of mines and mineral development and taxation of minerals and mineral rights by virtue of the parliamentary declaration contained in Section 2 of the MMDR Act, 1957 and the various taxing provisions in the MMDR Act, 1957 itself.

"The states' legislative power to both regulate and tax under Entry 23 and Entry 50 of List 2 stands completely denuded," he submitted.

The hearing remained inconclusive and would continue on Thursday.

The top court on Tuesday asked the Centre as to why the statute does not say in clearer terms that only Parliament has the power to impose tax on minerals and states are denuded of authority to levy such exaction.

Solicitor General Tushar Mehta, appearing for the Centre had said the entire architecture of the MMDRA is the limitation on the states' legislative power to impose tax on minerals.

On February 27, the top court had commenced hearing the hugely disputed issue of whether the royalty payable on minerals extracted, as provided for under the MMDR Act, 1957 is in the nature of tax.

The issue arose after the 1989 verdict in the case of India Cements Limited versus State of Tamil Nadu wherein a seven-judge bench of the apex court held that royalty was a tax.

However, a five-judge bench of the apex court ruled in 2004 in the State of West Bengal versus Kesoram Industries Limited case that there was a typographical error in the 1989 verdict and that royalty was not a tax.

The dispute was then referred to a larger nine-judge bench.

The top court is hearing a batch of 86 appeals filed by mining companies, public sector undertakings (PSUs) and state governments arising from conflicting verdicts passed by different high courts on the issue.