The Supreme Court on Wednesday reserved its verdict on whether its July 25 judgment upholding the power of States to tax mineral rights and mineral-bearing lands should be given only a prospective effect.
The nine-judge Bench of Chief Justice of India DY Chandrachud, Justice Hrishikesh Roy, Justice Abhay Oka, BV Nagarathna, Justice JB Pardiwala, Justice Manoj Misra, Justice Ujjal Bhuyan, Justice SC Sharma and Justice AG Masih heard arguments on whether the States should be allowed to recover past dues for the period before the date of pronouncement of its July 25 verdict.
Solicitor General of India Tushar Mehta requested the Court not to enable recoveries. He argued that the judgment in India Cements Ltd. vs State of Tamil Nadu (1990) 1 SCC 12 [34], which was overruled by the nine-judge bench, had 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 was 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 were dependent on minerals, he said.
The SG further stated that the parties who had taken part in public auctions for mining leases, based on the 2015 amendment to the MMDR Act, formulated their bids as per the then-existing rates, without anticipating any retrospective tax levy by the States.
The retrospective application of the judgment would affect many industries, including the PSUs, and open the floodgates of new litigations, he noted.
The SG pointed out that neither the state may demand any levy retrospectively nor the private parties or PSUs who have paid would seek any refund of the money.
Noting that this proposal would do justice to both sides, SG Mehta handed over a compilation of 62 judgments, where the Court has applied the principle of prospective overruling.
Appearing for Mahanadi Coalfields, Senior Advocate Harish Salve submitted that the past levy demands would be more than the net worth of many companies and if they were allowed, several of them would be pushed to bankruptcy.
Senior Advocate Mukul Rohatgi cited the Apex Court’s July 30 verdict in the Bar Council-enorlment fee matter, in which the Bench stated that it would not apply retrospectively.
Senior Advocate Arvind Datar referred to a report by the Ministry of Mines, where the Central government increased S.9 and S.9A levies to compensate the states for the loss of revenues.
Advocate General of Odisha Pritambar Acharya submitted that the State legislations were primarily welfare measures aimed at the tribal population residing in mining regions. He further submitted that the increase in the royalties by the Union has benefited the State as well.
The Bench asked the Advocate General to make a clear stand on whether the judgment should apply retrospectively or not. The AG evaded a clear answer, saying that he was offering different perspectives.
The Bench told the Odisha AG not to pass its own dilemma to the Court.
In a lighter vein, the CJI pointed out that the AG was standing in the centre of the Court while making submissions. At this juncture, the SG said that states like Rajasthan and Madhya Pradesh were in favour of having a prospective effect.
Appearing for the State of Jharkhand, Senior Advocate Rakesh Dwivedi 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.
Pointing out that the Jharkhand law was enacted in 1994, Dwivedi submitted that to make this law inoperative on the basis of the overruled India Cements judgment, would be a “travesty of justice.”
He referred to the 2004 judgment in the State of West Bengal v. Kesoram Industries Ltd case (which differed from India Cements). The Senior Counsel said the Court would be now forced to get into another issue on whether India Cements or Kesoram would govern the period before the nine-judge bench verdict.
Dwivedi suggested that the past arrears could be paid in a staggered manner in installments. He said the laws passed by Rajasthan, MP, UP and Chhattisgarh were upheld by the respective High Courts and the Supreme Court has not stayed those judgments.
In West Bengal, the companies have been complying with a similar law and they have not been affected, he added.
Dwivedi contended that an argument of financial difficulty cannot be raised without any supporting materials. He demanded that the companies produce their balance sheets and file affidavits.
Advocate General of Jharkhand Rajiv Ranjan submitted that the Court should not be moulding the relief at the instance of assessee companies, who have not discharged their burden. Over the concerns raised by SG Mehta on the common man being impacted, the Jharkhand AG stated that the money which the States collected was also meant for the common man’s welfare.
Appearing for the State of UP, Senior Advocate Vijay Hansaria contended that the state levy was upheld by the High Court and the Supreme Court also approved it. All companies except Hindalco and Kanoria Chemicals have been paying the state tax.
The SG submitted in a rejoinder that he was not arguing that the overruled judgment in India Cements should be allowed to operate till the pronouncement of the nine-judge bench verdict.
The nine-judge bench judgment was a law of the law, he said, adding that he was only seeking a ‘moulding’ of the relief, in exercise of the powers under Article 142 of the Constitution in the peculiar factual circumstances.
He said a listed PSU would face a demand of past arrears, which would be more than its net worth.
The top court of the country held on July 25 that States have the power to levy tax on mineral rights and that the Union law – Mines and Minerals (Development and Regulation) Act 1957, did not limit such power of the States.
The nine-judge Constitution Bench passed the order by an 8:1 majority.
Chief Justice of India DY Chandrachud wrote the judgment on behalf of himself and seven colleagues. Justice BV Nagarathna delivered a dissenting judgment.
The July 25 verdict deliberated on whether royalties on mining leases 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 Mines and Minerals (Development and Regulation) Act, 1957.
The majority held that Royalty was not within the nature of a tax as it was a contractual consideration paid by the lessee to the lessor under the mining lease. Both royalty and dead rent did not fulfil the characteristics of tax.
The Apex Court also overruled the judgment in India Cement Ltd. v. State of Tamil Nadu (1990) 1 SCC 12 [34], which held that the payment made to the Government cannot be deemed as tax merely because the statute provided for the recovery of the arrears.
The nine-judge Bench which delivered the judgement on July 25 comprised CJI DY 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.5