25 July 2024 2:07 PM GMT
While upholding the power of States to tax mineral rights and mineral-bearing lands, the Supreme Court (8:1 majority) emphasised the importance of safeguarding the principle of fiscal federalism.
"Taxation is among the important sources of revenue for these States, impacting on their ability to deliver welfare schemes and services to the people.Fiscal federalism entails that the power of the States to levy taxes within the legislative domain carved out to them and subject to the limitations laid down by the Constitution must be secured from unconstitutional interference by Parliament," stated Chief Justice of India DY Chandrachud in the majority judgment.
Quoting from the Constitution Bench judgment in Jindal Stainless Steel v. State of Haryana (2016), the judgment stated that in a federal form of government, each federal unit should be able to perform its core constitutional functions with a certain degree of independence.
The Constitution has to be interpreted in a manner which does not dilute the federal character of our constitutional scheme, the judgment affirmed, following the principle expounded in Jindal Stainless.
CJI Chandrachud explained that one of basic features of fiscal federalism is that both the Union government and the State governments ought o have adequate fiscal resources to discharge their constitutional responsibilities. List I and List II of the Seventh Schedule contain various subject- matters under which Parliament and the State legislatures can respectively levy taxes. The purpose of such a distribution is to entrust adequate fiscal powers with the legislatures to raise revenues to meet the growing fiscal expenditures and rein in the fiscal deficit.
States' taxing powers cannot be diluted
The Court affirmed that the power of the States to levy taxes within the domains assigned to them by the Constitution cannot be diluted. If the States' powers are curtailed, it will affect their ability to raise revenue for the welfare of their people.
The judgment stated :
"Any dilution in the taxing powers of the State legislatures will necessarily impact their ability to raise revenues, which in turn will impede their ability to deliver welfare schemes and services to the people.The ability of the State Governments to invest in physical infrastructure, health, education, human capacity, and research and development is directly co-related to the raising of government revenues. Constitutional courts have to be cognizant of this context while adjudicating on issues affecting the taxing powers of the State legislatures(paragraph 53)."
The judgment further added :
"The States have a constitutional and sovereign authority to exercise their taxing powers, within the bounds of the Constitution, to raise adequate revenues for the welfare of the people(para 249)."
In this context, the Court pointed out that though States like Orissa, Jharkhand and Chhattisgarh are rich in mineral resources, they are lagging in economic development and have lesser per capita income than national averages.
Can't assume taxes imposed by States will impede development
The Court also refuted the argument that allowing States to levy taxes on a national resource like minerals will impede development.
"It cannot be assumed that any tax levied by the State legislature under Entry 50 of List II will be ipso facto against mineral development. It is now a well- established principle that an increase in the rate of tax on a particular commodity cannot per se be said to impede free trade and commerce in that commodity.
The legislative powers granted to the State legislatures cannot be whittled down impliedly based on the presumption that all taxes on mineral rights imposed by the State will have adverse economic consequences on mineral development."
The 9-judge bench comprised CJI DY Chandrachud, Justices Hrishikesh Roy, Abhay Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma and AG Masih. Justice BV Nagarathna delivered a dissenting judgment.
The crux of the issue was whether the Parliamentary law Mines and Minerals (Development and Regulation)Act 1957 took away the power of the States to levy taxes on mineral rights. The issue hinged on the interpretation of the scope of Entry 54 of List 1(Union List), Entry 50 of List II(State List), Entry 49 and 23 of List II. The majority held that MMDR Act did not denude the States of their powers.
Detailed story on the judgment can be read here.
Case Details : Mineral Area Development v. M/S Steel Authority Of India & Ors (CA N0. 4056/1999)
Citation : 2024 LiveLaw (SC) 512
Click here to read the judgment