New Delhi: In an important decision related to the rights of the states, the Supreme Court has said that Parliament does not have the right to levy tax on mineral rights. This right lies with the state governments. The Constitution Bench of 9 judges ruled 8-1 that unless Parliament imposes any limit, the state’s full right to levy tax on mineral rights remains unaffected. Justice BV Nagarathna gave a separate verdict expressing disagreement.
A majority of 8 judges of the Supreme Court ruled that the royalty paid by mine lease holders to mineral land owners cannot be considered a tax. SC said that royalty is part of a kind of contract between the mine license holder and the state government. The court said that every amount paid to the government cannot be considered a tax.
Royalty is not a tax: Supreme Court
Chief Justice DY Chandrachud, while reading out the majority judgment, said, “If Parliament has no legislative competence to tax mineral rights, can it exercise residuary powers to tax it? This would be considered negative. The scope of taxation cannot be derived from regulatory taxation entries. Since Entry 54 of List 1 is a general entry, it would not include the power of taxation.”
The CJI further said, “If Parliament does not have the legislative competence to tax mineral rights under Entry 54 of List I, can it exercise the residuary power to do so? The answer is negative. The calculation under List II is a function constitutionally entrusted to the States. This court is bound by that. The scope of taxation has to be derived from the taxation entry and not from the regulatory entry.”
SC said in the judgment that royalty is not a tax. Royalty is a contractual consideration paid by the mining lessor to the lessee. Payments made to the government cannot be considered as tax merely because there is a provision for recovery of dues in a law.
Lucknow Press
