MMDR Act Ousts State's Power Over Taxing Minerals; Limitation Imposed In National Interest : Union Tells Supreme Court [DAY 6]

Appearing for the Union, the Solicitor General (SG) Mr Tushar Mehta drew attention to the Constituent Assembly Debates (CAD) of August 31, 1949, where Entry 52, 53, and 54 in the final constitution, and Entries 65, 64, and 66 in the draft constitution, were debated.

Dr. Ambedkar's perspective was highlighted, emphasizing that once the centre obtains jurisdiction over a particular industry (Entry 52 List I), that industry becomes subject to Parliament's jurisdiction in all aspects.

“The relevant portion of the debate is as under - Hon'ble Dr. Ambedkar - (referring to Entry 52 List I) My submission is that once the centre obtains jurisdiction over any particular industry as provided for in this Entry, the industry becomes subject to the jurisdiction of the parliament in all its aspects.”

The SG contended the similarity of words and thereby a common legislative intent between Entry 52 List I (Industries controlled by Union by Central Law) and Entry 54 List I (Union's Power over Regulation of Mines and Mineral Development).

“ My lords please note this is entry 52, similarly worded that industries which are declared by the law made by the Parliament to be in Public Interest…similar to Entry 54 List I”

Justice Nagarathna however pointed out a crucial difference, highlighting that Entry 52 involves industries the Union has declared control over, whereas Entry 54 has a broader scope related to the regulation of mines.

“ No there is one difference between Entry 52 and 54 List I, Entry 52 it is the industries the control on which the Union has declared. But Entry 54 -' regulation of mines and mineral development to the extent to which such is declared by the Parliament. There is a vital difference.”

The SG argued that Entry 54 might have a wider ambit than Entry 52, indicating the significant implications of these constitutional entries on the regulation and development of mines and minerals

The CJI intervened, emphasizing that the court has to deal with understanding 'limitations' as mentioned under Entry 50 List II (State's power on taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development). He clarified that when the central government takes control of an industry, it is absolute in all aspects of control.

The SG asserted that the question of where the particular limitation (mentioned in Entry 50 List II) lies is inappropriate. He argued that the limitation is imposed by law itself, not under the law and that the existence of law inherently serves as a limitation.

“ The limitation is put by law, not under the law. By law, itself is a limitation.”

MMDR Act 1957 Is The Limitation Itself - SG Exemplifies With A Chair Metaphor

The SG's main contention was that there is no explicit negative provision in the MMDR Act, stating that state legislatures are stripped of power. He argued that such a provision is unnecessary as the negative implication arises from the central government occupying the field. Using the analogy of occupying a chair, he asserted that no additional provision is needed to exclude others. The example was given to explain that the 'limitation' as mentioned under Entry 50 List II need not refer to an expressly prohibiting provision. The existence of the MMDR Act itself was sufficient to limit the state powers under Entry 50 List II.

“ There is no negative provision in the MMDR Act, that state legislature is denuded of the power because no legislative drafting would have such a provision. A negative provision is not required. However, that negative provision is implied by occupying the field. Suppose I am sitting on this chair. Mr Singhvi (present next to the SG) cannot sit on this chair as I am occupying it. …so I do not have to say that no Dr Singhvi will not sit here, I already occupy the chair.”

Justice Nagarathna interjected, questioning what lies beyond the metaphorical chair. She emphasized that the chair is not exhaustive and that there might be elements beyond it. Implying that one may have to look beyond the ambit of the MMDR Act alone.

“ The question is what is beyond the chair? The chair is not exhaustive of everything. There is something beyond the chair”

The SG responded by stating that when the fixation of mineral rates occurs, everything beyond the metaphorical chair is considered. He asserted that the MMDR Act is a comprehensive code, all-inclusive and exhaustive in itself. According to his submission, when the Act provides for the fixation of the fiscal levy, it encompasses all aspects of the fiscal levy, making additional provisions unnecessary.

“When the fixation (of mineral rates) takes place everything beyond the chair is also taken into consideration. As the CJI said, the MMRDAct is a block, its all-inclusive. MMRD Act is a complete code in itself. When it provides for the fixation of fiscal levies, it exhausts all fiscal levies. That is my respectful submission.”

Later in the discussion, the chair metaphor resurfaced as the SG explained Entry 54 List I as the occupying field over Entry 50 List II. The CJI humorously remarked on the metaphor, stating, "Your submission is that because I am occupying my chair, Dr. Singhvi is ousted from occupying his chair!" This elicited laughter from the bench.

The SG reverted, reminding that his metaphorical example was of a single chair in a room to illustrate the central government's exclusive authority over mineral development and regulation. According to the SG, Entry 54 List I of the Constitution occupies this metaphorical "chair," and Entry 50 List II establishes that if there is a law under Entry 50, the centre dominates the field. The SG clarified that the field in question pertains solely to mineral development and regulation. He asserted that his occupancy of the metaphorical chair is motivated by public interest, not merely to act as a keeper. The argument emphasized that Entry 54 doesn't just stipulate development and regulation but requires the centre's law to be in the public interest, further reinforcing the central government's exclusive role in this domain.

“ There is only one chair in the room which I am occupying with the intention of ensuring that nobody else including Dr Singhvi occupies the chair. There are no two chairs here. Your Lordships for example has re-supposed there are two chairs here. I am saying there is Entry 54 List I, and Entry 50 List II says if there is a law under 50, you are out. There is a law under 50 List II, the field is occupied. There is only one field which is mineral development and regulation. So my metaphoric example was when there is only one chair and I occupy that chair with the intention of excluding others. I have to show public interest. It's not that the centre wants to act like a keeper, there is public interest involved. Entry 54 stipulates, that my law (centre's) is not just for development and regulation to oust or to be treated as a limitation, it must be in the public interest also”

Legislative Intent Behind MMDR Act Was To Have A Unified Control Over National Minerals - Union Submits

The SG dwelt in depth on the legislative purpose behind the MMDR Act and culled how the intent of the enactment itself was an extension of the Union's Powers under Entry 54 List I (regulations of mines and mineral development) .

The SG referred to parliamentary debates surrounding the introduction of the MMDR Act to shed light on its legislative intent.

Quoting from the debates, the SG highlighted a crucial statement:

"What we are doing in this Bill is to denude the States of all their powers and responsibilities not only of the minerals mentioned in Schedule I which is very comprehensive, but in some respect we have even taken away the regulatory powers of the State in respect of all other minerals."

The SG emphasized that the intent was purely to consider the holistic view on the management of national minerals at the Countrywide and Global levels.

To supplement the contention, reliance was also placed on the dissenting opinion of Justice SB Sinha in State of West Bengal v. Kesoram Industries Ltd. The relevant portion reads as follows :

410. The expression “any limitations” in Entry 50 of List II should not be given a restricted meaning as contended by the appellant. In fact, the rule of interpretation that the language of the entries should be given widest scope, should equally apply to the interpretation of the said words. So read the limitations on “taxes on mineral rights” could be in any form, including occupying the entire field of legislation under Entry 50 of List II by parliamentary legislation and providing for the levy of taxes. The MMRD Act, of 1957 precisely achieves the said objectives by occupying the entire field of legislation covered by both Entries 23 and 50 of List II. (See India Cement [(1990) 1 SCC 12: 1989 Supp (1) SCR 692: AIR 1990 SC 85] .)

411. In Orissa Cement [1991 Supp (1) SCC 430 : (1991) 2 SCR 105] this Court explained the scope of the MMRD Act, 1957 thus: (SCC pp. 485-86, para 53)

“Section 25 implicitly authorises the levy of rent, royalty, taxes and fees under the Act and the Rules. The scope of the powers thus conferred is very wide. Read as a whole, the purpose of the Union control envisaged by Entry 54 and the MMRD Act, 1957 is to provide for proper development of mines and mineral areas and also to bring about a uniformity all over the country in regard to the minerals specified in Schedule I in the matter of royalties and, consequently prices.”

Referring to Justice Sinha's dissent, the SG stressed that the expression "any limitations" in Entry 50 of List II should be interpreted broadly, and the rule of giving the language of entries the widest scope applies. It argues that limitations on "taxes on mineral rights" can take various forms, including parliamentary legislation occupying the entire legislative field covered by both Entries 23 and 50 of List II. The MMDR Act is cited as an example of legislation achieving this objective.

The judgment further cites the India Cement case and explains that the purpose of Union control, as envisaged by Entry 54 and the MMRD Act, is to ensure proper development of mines, create uniformity in royalties, and establish consistent pricing nationwide for minerals listed in Schedule I.

Clarifying The Division of Mineral Jurisdiction: Major vs. Minor Minerals

The SG highlighted the distinction between major and minor minerals, emphasizing that minor minerals are primarily used locally, with their impact limited to within the state. According to him, the MMDR Act allows the state to govern minor minerals through statutory enactment.

The SG underscored a crucial point, stating that the heart of his submission lies in recognizing that minerals with a localized impact, such as minor minerals, face no limitations under the MMDR Act. In fact, the Act empowers state governments to determine royalties for minor minerals. Importantly, this authority is not granted by Entry 25 (State's Powers on Gas and Gas Works) or Entry 23 (State's powers on regulations on mines and mineral developments) of List II but is a result of the MMDR Act enacted under Entry 54 of List I.

Additionally, Dr AM Singhvi proposed 6 main alternative views in support of the arguments made by the Respondents.

1. Royalty is a tax and or qualifies as an impost as a compulsory exaction under Article 366(28) of the Constitution
2. Dead rent being a tax is directly occupied by S.9A of MMDR Act 1957 - this tax is a tax on mineral rights. Dead rent is a fixed minimum rent paid by the tenant of mining or mineral-bearing land to govt/landowner.
3. Entry 50 list II itself recognises a taxing limitation by the Parliament. The limitation must include the limitation of taxation. This limitation implies a combined reading Entry 54 List I and Entry 97 List I ( any matter not mentioned in List II&III including any tax not mentioned in either of those lists)
4. Tax on minerals and tax on mineral rights are two different concepts.
5. The Court should clarify whether 'all fiscal levies' includes 'fees', if there is no power under Entry 23 List II, there cannot be a power under Entry 66 List II to levy fees (empowers states to levy taxes on the capital value of assets, excluding agricultural land, belonging to individuals and companies, as well as taxes on the capital of companies)
6. On the patent errors in the decision of Kesoram (which the counsel would elaborate on in detail at the next hearing)

The hearing will continue today i.e March 13

Background

The key reference question involved in the present matter is to examine the nature and scope of royalty as prescribed under Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) and whether it could be termed as tax.

The matter was referred to 9 judge bench in 2011. A three-judge bench headed by Justice SH Kapadia had framed eleven questions to be referred to the nine-judge bench. These include important tax law questions such as whether 'royalty' can be considered as being like tax and can the State Legislature while levying a tax on land adopts a measure of tax based on the value of the produce of land. The three-judge bench clarified in this case that the reason why it was not referred to a five-judge bench and directly referred to a nine-judge bench was because prima facie, there appeared to be some conflict in the decisions of State of West Bengal v. Kesoram Industries Ltd. and Ors which was delivered by a bench of five-Judges and India Cement Ltd. and Ors. v. State of Tamil Nadu and Ors. which were delivered by seven-judge benches.

Case details : Mineral Area Development v. M/S Steel Authority Of India & Ors (CA N0. 4056/1999)

States' Power To Tax Mineral Rights Eclipsed By Union Law On Mineral Development : Harish Salve In Supreme Court [Day 4]