Yours, mines, ours

SC right to rule states can tax minerals. But states should be sensible while imposing the tax

The SC constitution bench’s judgment (8-1) on the dispute between states and Centre regarding the former’s right to levy tax on minerals should settle the long-festering issue. It’s also indicative of the glacial pace of judicial processes in India. The ruling came 13 years after the matter was referred to a 9-judge bench. By holding that states have the right to levy such taxes, SC has made clear the remit of MMDR Act, 1957. The verdict also removes confusion arising out of differing conclusions reached by SC in India Cements (1989) and Kesoram Industries (2004) judgments.

Legal position’s clear | Two points of law stand settled post this verdict. One, ‘royalty’ is not tax, contrary to what GOI argued. As against a tax which is imposed for public purposes, a royalty is a contractual payment governed by a lease agreement between parties, SC said. Two, there is nothing in MMDR Act that prevents states from levying taxes on mineral rights. This view went against govt’s contention that MMDR was enough to limit states’ powers on taxing mineral rights.

The federal issue | Underlying the case was the deeper federal question and the issue of how much authority the Centre has in the name of ‘national’ welfare. Different regions in India are blessed with different resources. It is understandable that mineral-rich states, of which many, like Jharkhand and Chhattisgarh, are poor, will want tax revenues from mining activity. Don’t coastal states gain from sea-based activities and hilly states enjoy the benefits of tourism? Besides, as CJI pointed out, states already have limited room when it comes to taxation, with most of the rights residing with the Centre. Would it be a good idea to dilute states’ authority further?

Compensate non-mineral states | It is not that GOI’s concern regarding states with no or little minerals is without basis. If an additional taxation power for mineral-rich states skews the scale against those without such natural resources, there are ways the Centre can compensate the latter, perhaps via deliberations in Centre-state forums. Just as poorer states get extra central funds, mineral-poor states can get something extra. Mining industry is worried that a new tax will increase costs. But if states keep the tax at sensible levels, the burden should be bearable. Mineral-rich states should remind themselves of the proverb on the goose that lays golden eggs. They shouldn’t kill the goose. 

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