States can levy taxes on land:SC

A five-judge constitution bench of the Supreme Court, overruling several of its earlier judgments and those of high courts, has passed the judgement that state governments have the power to levy cess on coal-bearing lands, tea estates, brickfields and lands with minor minerals.

The earlier conflict of views among the courts was whether the levy was on land or on goods produced from land such as coal, tea or other items. If it was on land, the states had the power to impose cess according to the federal principles set out in the Seventh Schedule of the Constitution. But if the levy was on coal, minor minerals and other goods taken out from the land, the power to levy taxes belonged to the central government.

There were conflicting interpretations on this. Therefore, the present judgment, delivered by a bench headed by Chief Justice V N Khare, is definitive on this point. Even this bench was divided four to one, with a judge writing over 200 pages taking the view against that of his brother judges.

The main appeal in this batch arose from the judgment of the Calcutta High Court, which had struck down the levy on coal-bearing lands in the case of Kesoram Industries Ltd. The West Bengal government appealed against it. The present judgment approved of the state levy and overruled the high court's view.

The majority judgment asserted the cess was levied on the land and the state had the constitutional power to do so.

The court explained: "The method of quantifying the tax is by reference to the annual value thereof. It is well known that one of the major factors contributing to the value of the land is what it produces or is capable of producing. Merely because the quantum of coal produced and dispatched or the quantum of minerals produced and dispatched from the land is the factor taken into consideration for determining the value of the land, it does not become a tax on coal or minerals. Being a tax on land, it is fully covered by Entry 49 of List II [State list]."