The Supreme Court on Wednesday refused to give a prospective effect from the date of judgment, to its verdict delivered on July 25 regarding the powers of the States to tax mineral rights and mineral-bearing lands.
The Bench led by Chief Justice of India DY Chandrachud permitted the States to recover the tax dues for the past period based on the judgment in Mineral Area Development Authority v. M/S Steel Authority Of India & Ors.
However, the Apex Court clarified that the levy of tax by the States, based on this judgment, should not operate on transactions made during the period before April 1, 2005.
Reading out the conclusions of the Bench, CJI Chandrachud ordered that the tax arrears could be paid over a staggered period of 12 years from April 1, 2026. There should be no levy of interest or penalty for the demand made for the period before July 25, 2024, he added.
The CJI explained that the Court has taken the financial year after the 2004 judgment in State of West Bengal v. Kesoram Industries, which upheld the power of States by overruling a previous judgment, as the cut-off.
The present order would be signed by only eight judges as Justice BV Nagarathna had dissented in the original judgment of July 25.
The Apex Court held on July 25, by an 8:1 majority, that States have the power to levy tax on mineral rights. The Union law – Mines and Minerals (Development and Regulation) Act 1957 – did not limit such power of the States, noted the nine-judge Bench of CJI Chandrachud, Justice Hrishikesh Roy, Justice Abhay Oka, Justice BV Nagarathna, Justice JB Pardiwala, Justice Manoj Misra, Justice Ujjal Bhuyan, Justice SC Sharma and Justice AG Masih. The Chief Justice of India DY Chandrachud wrote the judgment on behalf of himself and seven colleagues. Justice BV Nagarathna delivered a dissenting judgment.
Following the pronouncement of the verdict, the Centre and certain assesses demanded that the judgment be given only a prospective effect. The nine-judge Bench held a hearing on this aspect on July 31.
Appearing for the Union government, Solicitor General Tushar Mehta requested the Court to clarify that the judgment will not enable recoveries for the period before the date of pronouncement.
He pointed out that the judgment in India Cements Ltd. v. State of Tamil Nadu (1990) 1 SCC 12 [34], which was overruled by the nine-judge bench, held the field for over 35 years and the positions which the parties had been following bona fide based on that precedent would be upset if the judgment is made retrospective.
Allowing retrospective demands by States would have a cascading effect on prices and ultimately the common man would bear the brunt, as almost all industries are dependent on minerals.
Senior Advocates Harish Salve, Arvind P Datar, Mukul Rohatgi, representing mining companies, also raised similar arguments.
Senior Advocate Rakesh Dwivedi, appearing for the State of Jharkhand, submitted that the judgment should be given the full effect by making it retrospective. He submitted that allowing the judgment only a prospective effect would mean that the laws validly enacted by the States would be deemed ineffective till July 25.
He submitted that the Jharkhand law was enacted in 1994. To make this law inoperative on the basis of the overruled India Cements judgment, would be a “travesty of justice.” He also pointed out that in 2004, the judgment in State of West Bengal vs Kesoram Industries Ltd, which differed from the India Cements verdict, came. The Court would be now forced to get into another issue whether India Cements or Kesoram would govern the period before the 9-judge bench verdict.
Regarding the concerns related to financial implications, Dwivedi suggested that the past arrears could be paid in a staggered manner in instalments.
Senior Advocate Vijay Hansaria, appearing for the UP mineral board, also supported Dwivedi’s arguments.