TAXATION POWER ON MINERAL (Syllabus: GS Paper 3 – Economy)
Context: A nine-judge Constitution Bench ruled that Indian states have the authority to tax mining activities and collect royalties from mining leaseholders, asserting that this does not interfere with their power to impose taxes.
Taxation Power on Mineral Rights
- Background of the Case: In 1989, a seven-judge Bench ruled that the Centre has primary authority over mining regulation under the Mines and Minerals (Development and Regulation) Act, 1957, and Entry 54 of the Union List.
oStates were permitted only to collect royalties and not impose additional taxes. The court classified royalties as taxes, making any cess on them beyond state authority.
- Supreme Court Rule: The SC's ruled that the 1989 verdict, which classified royalties on minerals as a tax under the Mines and Minerals (Development and Regulation) Act, 1957, was incorrect.
Difference Between Royalty and Tax
- Royalty: It refer to the fees paid to the owner of a product in exchange for the right to use that product.
oExample of Royalties: If a movie studio wants to use an existing piece of music by a specific artist in their new film, they will have to pay a royalty fee that goes to the artist.
oLegal Framework: Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDRA) requires lessees to pay royalty in respect of any mineral removed to the individual or corporation who leased the land.
- Tax: It is imposed under statutory power without reference to any special benefit conferred on the payer.
oPurpose: Taxes are imposed for public purposes and are part of the common burden borne by all citizens.
oNo Specific Benefit: Unlike royalties, taxes do not involve a quid pro quo arrangement; the payment is mandatory and not linked to any specific privilege or benefit.
