Allowing States to collect tax on mineral rights will lead to unhealthy competition, says Justice Nagarathna who gave dissenting view

New Delhi: Justice B V Nagarathna, who differed with the majority view on the States' competence to impose tax on minerals land, on Thursday said allowing such a collection of cess would lead to unhealthy competition and even an uneven increase in cost of minerals.

In her separate judgement, she said if royalty is not held to be a tax and covered under the provisions of the MMDR Act, 1957, it would imply that despite Entry 54 – List I and the declaration made in Section 2 of the MMDR Act, and Section 9, 9A and other provisions thereof, taxes on mineral rights could be imposed by the states over and above payment of royalty on a holder of a mining lease.

"This would also mean that the limitation that the Parliament has made by law on the taxing power of a State explicitly stated in Entry 50 – List II would be given a go by," she said.

Justice Nagarathna said this would further imply that despite such a Parliamentary limitation, the States could pass laws imposing taxes, cesses, surcharge on cess, etc on the basis of royalty which is in addition to payment of royalty.

"This would result in mineral development in the country in an uneven and haphazard manner and increase competition between the States and engage them into what has been termed by Louise Tillin in a 'race to the bottom' in a nationally sensitive market,” she said.

Justice Nagarathna said that there would be unhealthy competition between the states to derive additional revenue and consequently, the steep uncoordinated and uneven increase in cost of minerals would result in the purchasers of such minerals coughing up huge monies, or even worse, would subject the national market being exploited for arbitrage.

She said the overall economy of the country would be affected adversely which may result in certain entities or even non-extracting States resorting to importing minerals which would hamper the foreign exchange reserves of the country.

"There would lead to a breakdown of the federal system envisaged under the Constitution in the context of mineral development and exercise of mineral rights. It could also lead to a slump in mining activity in States which have mineral deposits owing to huge levies that have to be met by holders of mining licences," she said.