States have power to impose tax on mineral rights, not Parliament: SC

The Constitution vests the power to impose a tax on mineral rights not in Parliament but in the states, the Supreme Court told the Centre on Thursday, underlining that such authority should not be diluted.

A nine-judge Constitution bench headed by Chief Justice D.Y. Chandrachud, which is considering whether the royalty collected by the Centre on mining leases can be considered as tax, as held by a seven-judge bench in 1989, said Parliament can only impose some limitations to ensure that mineral development is not impeded.

The bench, also comprising justices Hrishikesh Roy, Abhay S. Oka, B.V. Nagarathna, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, said in respect of Entry 50 of list 2 of the 7th Schedule of the Constitution, what Parliament can do is impose restraints, but it cannot say it has the power to impose the tax and states don’t have it.

The 7th schedule of the Constitution specifies allocation of powers and functions between the Union and states.

“Power to impose tax is not given to Parliament at all, it is only given to the states. But, in the interest of mineral development, Parliament can say you cannot tax in this manner, or for instance, tax should not exceed say 20 per cent because if you do impose tax in a certain way, it may impede mineral development,” the CJI told attorney-general R. Venkataramani.

The AG contended the Entries in List 1 (union list) and 2 (state list) have to be looked at in a certain way, and all activities related to minerals will form part of mineral rights from birth till completion of the mineral activity.