The Supreme Court on Wednesday held that its July 25 judgement allowing state governments to tax mining and related activities will apply retrospectively, but only on transactions from April 1, 2005, Bar and Bench reported.
The nine-judge bench headed by Chief Justice DY Chandrachud rejected the argument that the verdict should only have a prospective effect.
On July 25, the bench ruled that the royalty paid by mining operators to the Centre is not a tax. Therefore, state governments have the right to levy cesses on mining and mineral-use activities.
The matter pertains to the question of whether state governments have the authority to regulate and tax activities relating to mines and minerals under the Mines and Minerals Development and Regulation Act.
Justice BV Nagarathna had dissented from the majority. Therefore, she did not sign Wednesday’s ruling.
On Wednesday, the court ruled that the tax arrears can be paid in instalments over 12 years starting from April 1, 2026. It also said that there should be no levy of interest or penalty for the tax demand made on or before July 25, 2024, Live Law reported.
Chandrachud had said on July 25 that royalty was not in the nature of tax. “We conclude that the observation in India Cements judgement stating that royalty is tax is incorrect,” the chief justice had said. “…payments made to the government cannot be deemed to be a tax merely because a statute provides for its recovery in arrears.”
Therefore, states were not divested of powers to levy cesses on activities related to mining, eight judges of the bench said.
In 1989, the Supreme Court held in the case involving cement manufacturer India Cements and the Tamil Nadu government that the royalty was a type of tax as per the Mines Act. Therefore, the state government did not have the power to add cesses on such royalties.
In a case involving Kesoram Industries and the West Bengal government in 2004, a five-judge bench said that the 1989 Bench had made a typing error and had meant to rule that only the cess on royalty is a type of tax and not the royalty itself.
In 2011, a three-judge bench held that there was a prima facie conflict between the two verdicts of 1989 and 2004 and referred the matter to a nine-judge bench.
After the July 25 judgement, Solicitor General Tushar Mehta, appearing for the Centre, urged the court to clarify that the judgement would only apply prospectively. He added that allowing states to demand retrospective taxes on mines and minerals rights would have a cascading effect that would ultimately harm citizens.
Senior Advocate Harish Salve, appearing for Mahanadi Coalfields, had contended that retrospective implementation of the judgement ran the risk of bankrupting several companies.
However, Jharkhand and Uttar Pradesh sought retrospective implementation of the verdict, according to Live Law.