Mining, for states to tax and take care

In an important judgment crucial to India's mineral-rich states like Jharkhand, West Bengal, Odisha, UP, Madhya Pradesh, Karnataka and Goa, last week, the Supreme Court affirmed that state governments have the authority to levy taxes on mineral rights, despite the regulatory framework established by the Mines and Minerals (Development and Regulation) Act 1957. The court found royalty not to be tax, thereby limiting the scope of Parliament's control over state taxation of mineral rights. This verdict is welcome.

It means enhanced revenue for states, many of which are resource-rich but poor. It underscores states' autonomy in a federal structure and, importantly, clarifies the scope of MMDR Act, distinguishing between regulation of minerals (a central domain) and taxation of minerals (a state domain). This has been long-pending and will, hopefully, avoid future conflicts over jurisdiction. Importantly, CJI D Y Chandrachud pointed out that states have limited room for taxation, with most rights residing with the Centre. While it could be a windfall for states, they will now also have the responsibility of spending on development and bear liabilities. Mining companies have warned that the extra costs could be passed on to customers, so states will have to tax sustainably.

All is not done yet. On the day the top court gave its ruling, the Centre, along with a batch of mining companies, argued that the judgment should be applied prospectively to prevent confusion, legal challenges and associated administrative burdens. The apex court has reserved its decision. A middle ground would be to go for the prospective application of the ruling to limit the impact on mining companies and ensure that the new regime can begin on a fresh note.