SC reserves order on whether Centre has to refund royalty levied by it on mines, mineral-bearing land

New Delhi [India], July 31 (ANI): The Supreme Court on Wednesday reserved its order on the issue of whether its July 25 judgement upholding the power of States to levy tax on mines and minerals bearing would be applied retrospectively.

The nine-judge bench to decide whether the royalty levied by the Centre on mines and mineral-bearing lands since 1989 will be refunded to the States.

On July 25, a nine-judge Constitution bench headed by Chief Justice D Y Chandrachud, by a majority 8:1 verdict, had held that States have the power to levy tax on mines and minerals-bearing lands under the Constitution and also ruled that royalty payable on extracted mineral is not a tax.

A bench of CJI Chandrachud and Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, Augustine George Masih, heard the arguments today from Centre, States and mining companies on whether its July 25 verdict giving States legislative competence to impose tax on mineral wealth will have prospective or retrospective effect.

Solicitor General Tushar Mehta, appearing for the Centre argued that making the July 25 verdict retrospective will have cascading effects on prices and ultimately the common man would bear the brunt, as almost all industries are dependent on minerals.

The Solicitor General asked the bench to clarify that the judgment will not enable recoveries for the period before the date of pronouncement.

Opposing the plea of the mineral-rich States seeking a refund of the royalty levied by it on mines and mineral-bearing land, he said any such order asking it to pay the alleged dues with retrospective effect will have a “multipolar” impact. On July 25, CJI Chandrachud along with seven other judges delivered a majority judgement while Justice BV Nagarathna delivered a dissenting judgment.

The majority judgement stated, “Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for the enjoyment of mineral rights. The liability to pay royalty arises out of the contractual conditions of the mining lease. The payments made to the Government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears.”

It said that the legislative power to tax mineral rights vests with the state legislatures and Parliament does not have the legislative competence to tax mineral rights under Entry 54 of List 1, as it is a general entry.

“Since the power to tax mineral rights is enumerated in Entry 50 of List 2, Parliament cannot use its residuary power concerning that subject matter,” it added.

Justice Nagarathna disagreeing with the majority verdict, held that royalty is like a tax. Hence, the provisions of the Union law- Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act) regarding the levy of royalty denude the States of their power to levy taxes on minerals.

The minority judgement stated that allowing States to levy taxes on minerals would lead to a lack of uniformity on a national resource. This could also lead to unhealthy competition among the States and this may result in the breakdown of the federal system, Justice Nagarathna said.

After the judgment was pronounced, Solicitor General Tushar Mehta, and senior advocates Arvind Datar and Abhishek Manu Singhvi had requested the bench to clarify that the judgment would operate only prospectively. The bench said it would hear the parties on this point next Wednesday.

The case involved the issue of whether State governments are denuded of powers to tax and regulate activities concerning mines and minerals given the enactment of the Mines and Minerals (Development & Regulation) Act (Mines Act).