Boost for mineral-rich states as SC allows them to recover from Centre royalty & tax dues since 2005

New Delhi, Aug 14 (PTI) In a major victory for mineral-rich states, the Supreme Court on Wednesday allowed them to recover from the Centre and mining companies royalty and tax dues on mineral rights and mineral-bearing lands worth thousands of crore of rupees since April 1, 2005 over a period of 12 years.

In a majority 8:1 verdict on July 25, the top court had ruled that the legislative power to tax mineral rights vests in states and not Parliament.

On Wednesday, pronouncing a related judgement on behalf of the nine-judge constitution bench, Chief Justice DY Chandrachud rejected the arguments of the Centre and mining companies, including Public Sector Undertakings (PSU), for operationalising the July 25 verdict with prospective effect.

During a hearing on the issue on July 31, the Centre had opposed the demand of states for refund of royalty levied on mines and minerals since 1989, saying if the July 25 verdict is implemented with retrospective effect, the PSUs, according to initial estimates, would lose more than Rs 70,000 crore.

The bench, also comprising Justices Hrishikesh Roy, Abhay S Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, noted the submission of the Steel Authority of India Limited (SAIL) that it stands to lose around Rs 3,000 crore in the event of the judgement coming into force retrospectively.

CJI Chandrachud said the Wednesday’s verdict will be signed by eight judges of the bench who had delivered the majority judgement on July 25. He said Justice Nagarathna will not sign the verdict as she had given a dissenting view on July 25.

“While the States may levy or renew demands of tax, if any, pertaining to Entries 49 and 50 of List II of the Seventh Schedule in terms of the law laid down in the decision in MADA (Mineral Area Development Authority) (July 25 verdict) the demand of tax shall not operate on transactions made prior to April 1, 2005,” the court ordered.

It said the time for payment of the demand of tax by the states shall be staggered in instalments over a period of 12 years commencing from April 1, 2026.

The bench said bearing in mind the consequences that would emanate from the past, it has imposed the conditionalities and directed that the levy of interest and penalty on demands made for the period before July 25, 2024 shall stand waived for all the assessees.

“Taking into consideration the lapse of more than three decades since India Cement (1989 verdict) and more than a decade since the matter was referred to a larger bench, equities will be balanced if the state governments waive the outstanding interest accrued on the principal due from the assessees,” it said.

On the submission of the Centre that some states like Madhya Pradesh and Rajasthan do not wish to collect the dues accrued in view of July 25 verdict, the bench said it is the prerogative of the state legislatures to determine whether to forego the dues for the period before July 25, 2024.

Giving the reasons for its finding, the bench said, “MADA (July 25 verdict) has upheld the legislative competence of States under Entries 49 and 50 of List II. If MADA is given a prospective application, the validity of all relevant legislation enacted before the date of the decision, that is July 25, 2024, will have to be tested on the touchstone of the previous law.”

It said the previous law on the aspects of interpretation of different entries related to taxation of mineral rights was unsettled because of the two conflicting decisions of the apex court in India Cements (1989 verdict) and Kesoram Industries (2004 judgement).

“There is always a presumption of constitutionality in favour of a statutory enactment. It is based on the theory that the elected representatives are aware of the needs of the citizens and are best placed to frame policies to resolve them. Legislation represents the will of the people and cannot be lightly interfered with unless it transgresses constitutional principles,” the bench said.

It added if MADA verdict is applied prospectively, the relevant taxing legislations may conceivably be invalidated, requiring the states to refund the amount collected to the assesses.

“Since the MADA verdict has answered the reference and resolved the conflict, it would be iniquitous to apply the decision prospectively,” it held.

The bench said Article 265 of the Constitution prescribes that no tax shall be levied or collected except by authority of law and the law must be valid in the sense that it must be within the legislative competence of the legislature and consistent with other provisions of the Constitution.

The top court noted that after the 1989 verdict of the seven-judge constitution bench, which held that states do not have power to levy cess on royalty, Parliament enacted the Cess and Other Taxes on Minerals (Validation) Act of 1992 to validate the imposition and collection of taxes on minerals made under the state legislations before 1991.

It said the Centre also increased the rates of royalty to compensate the states for the loss of mineral revenue.

“A pragmatic solution to reconcile the financial interests of the States and the assessees can be achieved by proscribing the States from demanding taxes pertaining to Entries 49 and 50 of List II of the Seventh Schedule for the period before Kesoram (2004 verdict),” it added.