The nub on the matterInterpreting a few entries in the Seventh Schedule of the Constitution, which deals with the powers of the Centre and the states and matters on the concurrent list, was at the heart of the dispute. While Entry 50 of List II says, states can levy “Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development,” Entry 49, List II puts “Taxes on lands and buildings” in the state basket. And Entry 54 of List 1 gives the Centre the right to “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.”The bench ruled that royalty is not a tax but a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights. The payments made to the government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears.As for the legislative power to tax mineral rights, the majority verdict said it vests with the state legislatures. Parliament, it pointed out, does not have legislative competence to tax mineral rights under Entry 54 of List I, since it is a general entry. Since the power to tax mineral rights is specified in Entry 50 of List II, Parliament cannot use its residuary powers in that matter, the bench ruled.However, Entry 50 of List II envisages that Parliament can impose “any limitations” on the legislative field created by that entry under a law relating to mineral development. But as of now, the MMDR Act has not imposed any such limitations. On balance, the scope of the expression “any limitations” is wide enough to include the imposition of restrictions, conditions, principles as well as prohibition, it ruled.The bench went on to establish that the yield of mineral bearing land in terms of the quantity of mineral produced or the royalty, can be used as a measure to tax the land.Justice B V Nagarathna was the lone dissenter. In her dissenting verdict, she said royalty is in the nature of a tax or an exaction and the Centre does have the power to levy it. She, however, concurred with the CJI that the scope of the expression “any limitations” under Entry 50 of List II is wide enough to include imposition of restriction, conditions, principles as well as prohibition by Parliament by law.“The State legislatures have legislative competence under Article 246 read with Entry 49-List II to tax lands and buildings but not lands which comprise mines and quarries or have mineral deposits as mineral bearing lands do not fall within the description of lands (under Entry 49-List II),” she said in her 193-page verdict.With complete unanimity on the powers of Parliament to legislatively impose restrictions, including prohibition, on mining rights of states, it remains to be seen if an innovative solution can be found out, as some experts suggest, to stop the hemorrhaging of the national exchequer.Ironically, it would mean enacting a law that would apply retrospectively to kill a retrospective order.
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