A fragmented state-wise levy on minerals could negatively impact downstream industries

The recent Supreme Court verdict ruling that the central government cannot restrict the powers of the state to decide the rates of royalties on minerals will not affect government of India’s revenues, the union Finance Secretary, Dr T V Somanathan said today.

Responding to a question raised by N Ram, Director of The Hindu Group Publishing Pvt Ltd, about the fiscal implications of the SC ruling, Somanathan also pointed out that the issue was not about sharing of revenues between the central government and the states, because revenues would anyway go to the states.’

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He said it was the government of India’s view that there was merit in the industry’s demand for a uniform rate across the country. But the Supreme Court has ruled otherwise and “we respect the Supreme Court’s decision.”

Last week, in an 8-1 majority ruling, a nine-judge Constitution Bench of the Supreme Court upheld the state government’s power to tax mines and minerals. Justice B V Nagarathna, dissenting from the majority view on the states’ competence to impose taxes on mineral lands, stated that allowing such a collection of cess could lead to unhealthy competition and uneven increases in the cost of minerals.

States and subsides

Vishnu Venugopalan, Managing Director and CEO of Guidance, Tamil Nadu government’s investment promotion body, raised a point about the “unhealthy competition” among states with some states luring investments with offers of subsidies.

Responding to this, Somanathan said that after the advent of GST (which took away states’ ability to offer lower sales tax and excise duty to investors), the only option that some states that had limited mineral resources was to stay competitive was to offer subsidies.

The central government could not possibly stop the states from offering subsidies from their own funds. In this context, he invoked the Supreme Court’s judgement on states’ right to decide on royalty levies and noted that when the central government was expected to respect the rights of states to fix their own royalty rates, it could not tell state governments not to give subsidies for attracting investments.

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