[Opinion] Please Mind the Fine Line | An Analysis of Supreme Court’s Judgment on Mineral Rights

Priya Tandon & Priyam Bhatnagar – [2024] 166 taxmann.com 465 (Article)

1. Introduction

Lord Emerich Edward Acton, an English Catholic historian, politician and writer very aptly remarked, “Power tends to corrupt, and absolute power corrupts absolutely”. It is in this context that decentralisation, or allocation of subjects amongst the Parliament and Legislatures of State, with certain overlapping subjects, assumes significance. Running a vibrant and vast democracy such as ours efficiently and effectively requires division in responsibilities, so that the benefit of engaging with communities both at macro and micro levels as well as sustaining a system of checks and balances, all towards economic stability and substantive justice, does not spill over to nearby jurisdictions. Decentralisation, as a functional problem-solving model, sustains on identification of the tier of Government better suited to fulfil the responsibility at hand. India has consistently wrestled with managing frictions associated with decentralisation, viz., balancing the autonomy of Legislatures of State and coordinating role of the Parliament over varied subject matters.

It is against the background set out above, that the authors will examine a judgment by the Constitution Bench of the Supreme Court. They will examine the impact of the observations in the said judgment, scrutinising the synthesis between Centre-States powers of taxation vis-a-vis mineral rights and mineral bearing land, beyond the complex construct before the Supreme Court.

2, The judgment in Mineral Area (Supra)

The core issue before the Supreme Court in Mineral Area (Supra) involved the interpretation of Entry 50 of List II to the Seventh Schedule to the Constitution of India, 1949 (“Constitution”), specifically, whether under Entry 50 of List II to the Seventh Schedule to the Constitution, Legislatures of State have the power to impose “taxes on mineral rights”, notwithstanding:

1. Mines and Minerals Development and Regulation Act, 1957 (“MMDR Act”), enacted under Entry 54 of List I to the Seventh Schedule to the Constitution.
2. Entry 23 of List II to the Seventh Schedule to the Constitution.
3. Entry 49 of List II to the Seventh Schedule to the Constitution.

At the very outset, the Supreme Court set out the scheme of distribution of legislative powers between the Parliament and Legislatures of State or federal supremacy, flowing from Article 245 of the Constitution. The Parliament has the supreme and exclusive power to make laws in respect of subject matters set out in List I to the Seventh Schedule to the Constitution. The Legislatures of State have the supreme and exclusive power to make laws in respect of subject matters set out in List II to the Seventh Schedule to the Constitution. In the event of a direct and irreconcilable conflict (or repugnancy) between a subject matter set out in List I and List II to the Seventh Schedule to the Constitution, the power of the Parliament to make laws in respect of the said subject matter will prevail over the power of the Legislatures of State in respect thereof. The Parliament and Legislatures of State have concurrent powers to make laws in respect of subject matters set out in List III to the Seventh Schedule to the Constitution. In the event of a direct and irreconcilable conflict (or repugnancy) in a law made by the Parliament and a law made by the Legislatures of State in respect of a subject matter set out in List III to the Seventh Schedule to the Constitution, the law made by the former will prevail. Instances of direct and irreconcilable conflict (or repugnancy) are resolved by application of doctrine of pith and substance. In this regard, specific expressions used in the Constitution assume relevance. For instance, where an Entry uses the expression “subject to”, it conveys the idea of a provision yielding to another provision, or in the instant context, of the legislative power of States set out in List II or List III being made subordinate to that of the Parliament. Further, where an Entry uses the expression “by law”, it conveys the idea that overriding powers should be effectuated through a statue by the Parliament, not by a subordinate authority vested with powers under a statue. The subject matter of taxation is dealt with under separate Entries in the Lists to the Seventh Schedule to the Constitution, which are not traceable to any non-taxing Entry. If the power to tax a specific subject matter is set out under a specific legislative List, the same stands excluded from the other Lists and is legislated upon as per the scheme set out above. The Parliament has the residuary power to tax a subject matter not set out under any legislative List. Any tax levied or collected against the mandate of Article 245 of the Constitution will be illegal, being in violation of Article 265 of the Constitution.

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