Breaking: SC Rules That Its Judgment Upholding Powers Of State To Tax Mineral Rights Will Have Retrospective Effect Till April 2005

The Supreme Court today held that the ruling of July 25, 2024 that royalty paid by mining operators to the Central Government is not a tax will not have only prospective effect. The Court clarified that the ruling will not operate for a period prior to April 1, 2005.

The Bench of Chief Justice DY Chandrachud, Justice Hrishikesh Roy, Justice Abhay S. Oka, Justice J.B. Pardiwala, Justice Manoj Misra, Justice Ujjal Bhuyan, Justice Satish Chandra Sharma and Justice Augustine George Masih said, "The submission to give only prospective effect is rejected."

The Bench said that the levy of interest and demand of penalty made on or before July 25, 2024, shall stand waived off. "We have said no interest no penalty, demands not before the year of Kesavram (financial year after Kesavram judgment), and then interest and penalty waived off and staggered payments over 12 years," the Court said. 

The CJI further said, "This order will be signed by 8 Judges, as Justice BV Nagarathna had dissented from the main judgment."

Pertinently, on July 31, the Court had reserved its order on the issue of whether royalty levied by the Centre on mines and mineral-bearing lands since 1989 will be refunded to the states. The Centre had opposed the plea of the mineral-rich states seeking refund of the royalty levied by it on mines and mineral-bearing land since 1989, saying any such order asking it to pay the alleged dues with retrospective effect will have a "multipolar” impact. Senior Advocate Rakesh Dwivedi, appearing for Jharkhand Mineral Development Authority had urged the Court to make the July 25 verdict retrospective and direct for refund of the royalty in a staggered manner.

In a significant verdict on July 25, a nine-judge Constitution bench headed by Chief Justice D.Y. Chandrachud, by a majority 8:1 verdict, held that the legislative power to tax mineral rights vests with the states and the royalty paid on minerals is not a tax. The verdict, which gave a huge revenue boost to mineral-rich states, however, led to another dispute with regard to the operation of the verdict.

The major questions that the Bench examined were whether royalties on mining leases should be considered as tax and whether the States have the power to levy royalty/tax on mineral rights after the enactment of the Parliamentary law MMDR Act. The Court also held that the expression "land" in Entry 49 of List II covers all categories of land. The matter was referred to a 9-judge bench in 2011.

A 3-judge bench headed by Justice SH Kapadia had framed eleven questions to be referred to the 9-judge bench. On March 14, 2024, the Bench reserved the judgment after arguments were concluded by the parties. The main issue was whether the royalties on mining leases should be considered as tax and whether the States have the power to levy royalty/tax on mineral rights. The hearing went on for 8 long days.

Cause Title: Mineral Area Development Authority Etc. v. M/S Steel Authority Of India & Ors. [Civil Appeal Nos. 4056-4064/1999]

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