Legal Reasoning Questions for CLAT | QB Set 31

The Supreme Court of India has delivered a landmark ruling on the taxation of mineral rights, overturning a 1989 verdict and reaffirming the states’ authority in this domain. This ruling was made by a 9-Judge Bench and clarified the extent of the power that both Parliament and the states hold concerning mineral royalties. Previously, royalties on minerals were classified as a tax under the Mines and Minerals (Development and Regulation) Act of 1957, placing limitations on states’ authority. 

However, the new judgment emphasizes that the power to impose taxes on mineral rights resides solely with the states. Parliament can only intervene to ensure that mineral development proceeds without hindrance, but it cannot impose taxes directly on mineral rights. This ruling reasserts states’ control under Entry 50 of List II of the Indian Constitution, which delineates the distribution of powers between the Union and state governments. The judgment also corrects a typographical error from the 1989 decision, which misclassified royalties as a tax. 

The ruling is significant as it impacts India’s extensive mineral sector, particularly coal and steel production, and supports India’s policy of attracting foreign direct investment (FDI) by ensuring autonomy in state-level resource management. This clarification from the Supreme Court ensures a balanced development approach between central oversight and state autonomy in mineral resource management, potentially bolstering India’s economic growth in sectors reliant on mineral extraction and development.

Questions 

Question 1:
In its recent decision, the Supreme Court of India overturned a 1989 verdict concerning the taxation of mineral rights. What was the key clarification provided by the Supreme Court regarding the authority of states and Parliament in relation to mineral rights?

(a) The Parliament has exclusive authority to tax mineral rights, while the states can regulate development.
(b) Both the states and Parliament can impose taxes on mineral rights, depending on the type of mineral.
(c) The power to impose taxes on mineral rights lies solely with the states, while Parliament can only impose restrictions to prevent hindrances to mineral development.
(d) States have no power to tax mineral rights, and only Parliament can regulate and tax this area.

Question 2:
The Supreme Court’s ruling emphasized the constitutional division of powers concerning mineral rights taxation. Under which constitutional provision does the power to tax mineral rights fall under the authority of the states?

(a) Entry 50 of List I of the Seventh Schedule.
(b) Entry 50 of List II of the Seventh Schedule.
(c) Entry 50 of List III of the Seventh Schedule.
(d) Entry 54 of List I of the Seventh Schedule.

Question 3:
What was the primary reason the Supreme Court decided to review and overturn its 1989 decision regarding mineral royalties?

(a) It was found that the previous ruling contained a typographical error regarding the nature of royalties.
(b) The 1989 decision led to an economic decline in India’s mineral sector.
(c) The Parliament requested clarification on the taxation of mineral rights.
(d) It was discovered that states had been illegally taxing mineral rights without Parliament’s approval.

Question 4:
The Supreme Court’s ruling supports India’s mineral sector by:

(a) Increasing Parliament’s power to regulate all aspects of mineral production.
(b) Encouraging 100% foreign direct investment (FDI) in mining activities, particularly coal and steel production.
(c) Limiting states’ ability to impose taxes on foreign-owned mineral companies.
(d) Ensuring a balanced development approach and sustaining mineral resource management.

Question 5:
According to the Supreme Court’s clarification, what role does Parliament play in the regulation of mineral development?

(a) Parliament has full control over both taxation and development of minerals across all states.
(b) Parliament can impose taxes on mineral rights to fund large infrastructure projects.
(c) Parliament can impose limitations to prevent hindrances to mineral development but cannot tax mineral rights.
(d) Parliament’s role is limited to imposing taxes on foreign companies engaged in mineral extraction.