New Delhi: The Supreme Court of India on Thursday has upheld the legislative authority of states to impose taxes on lands bearing mines and minerals. The ruling, delivered by a nine-judge Constitution bench with a majority decision of 8:1, marks a significant shift in the governance of mineral resources in the country.
Chief Justice DY Chandrachud, speaking for himself and seven other judges, emphasized that the royalty payable on minerals should not be construed as a tax. He clarified that Parliament does not have the authority to tax mineral rights under Entry 50 of List II of the Constitution, unless limited by laws concerning mineral development. This decision overturns a 1989 Supreme Court ruling that previously classified royalty as a tax.
The recent judgment underscores the legislative competence of states in taxing mineral resources, challenging the central government’s position on retaining taxing powers. This development is expected to have far-reaching implications on economic management and governance related to mineral resources across India.
The bench, which included notable justices such as Hrishikesh Roy, Abhay S Oka, and Manoj Misra among others, presented two separate judgments. Justice BV Nagarathna offered a dissenting opinion, arguing against states’ authority to levy such taxes.
The decision is set to reshape the regulatory framework governing mineral resources, granting states more autonomy in their economic exploitation and governance. It reflects an evolving interpretation of constitutional provisions regarding state and central powers, particularly in the domain of mineral rights and taxation.
This ruling is anticipated to bring about significant changes in how mineral resources are managed and taxed in India, highlighting the evolving dynamics between state and central authorities in the country’s federal structure.
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Q. What is Tax on mineral resources?
A. Tax on mineral resources typically refers to the financial charges levied by governments on the extraction, processing, and sale of minerals. These taxes are a significant source of revenue for governments and help ensure that the extraction of mineral resources benefits the broader economy and society. There are various types of taxes and royalties applied to mineral resources, including:
1. Royalty Payments: A percentage of the revenue or quantity of minerals extracted paid to the government or landowners. These payments are often stipulated in mining leases or contracts.
2. Severance Taxes: Taxes imposed by states or regions on the extraction of non-renewable resources, such as minerals, oil, or natural gas. The tax rate can be based on the value or volume of the resources extracted.
3. Corporate Income Tax: Standard income tax applied to the profits earned by mining companies.
4. Ad Valorem Tax: A tax based on the value of the mineral resources extracted. This can be a percentage of the market value of the minerals at the point of extraction.
5. Export Duties: Taxes on minerals exported out of a country, aimed at encouraging domestic processing and value addition.
6. Environmental Taxes and Fees: Levies to address environmental impacts of mining activities, such as land reclamation fees, pollution control fees, and other environmental mitigation costs.
The specific structure and rates of these taxes vary widely depending on the country and the type of mineral resources. These taxes are designed not only to generate revenue but also to regulate the exploitation of natural resources, encourage sustainable practices, and ensure that the local communities and economies benefit from mining activities.
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