States Can Collect Past Tax Dues On Mineral Rights: Supreme Court's Big Verdict

The top court today allowed the states to collect past dues on royalty and tax on mineral bearing land from April 1, 2005

The apex court clarified that states can't charge penalty or interest on past dues

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In a big financial boon for States rich in minerals, the Supreme Court on Wednesday rejected the plea that its verdict upholding state's right to levy taxes on minerals should only apply prospectively. The top court today allowed the states to collect past dues on royalty and tax on mineral bearing land from April 1, 2005, from Centre and mining lease holders.

A nine-judge Bench of the Supreme Court on July 25, delivered a judgment upholding rights of State governments to tax mining and related activities. Today, the top court held that the July 25 verdict will apply retrospectively but with respect to transactions after April 1, 2005.

However, the nine judge bench that had passed the verdict by 8:1 majority, said that past dues would be paid in a staggered manner over the next 12 years to the state.

The apex court clarified that states can't charge penalty or interest on past dues and laid down specific conditions regarding the retrospective applicability of its recent ruling, which affirmed the legislative competence of states to levy taxes on minerals and mineral-bearing land in addition to the royalty imposed by the Centre.

The Supreme Court in its July 25 verdict had ruled that royalty and debt rent paid by mining operators are not tax and the Parliament does not have power to tax mineral rights under Entry 50 List I.

The majority verdict by eight judges held that States have the power to levy tax on mineral rights and the Parliamentary law Mines and Minerals (Development & Regulation) Act 1957 has no such provision to impose limitation on powers on state to tax minerals.

One judge Justice BV Nagarathna gave a dissenting opinion and held that the concept of royalty has to be seen from Sections 9 of MMDR Act and nothing else. Justice Nagarathna held that royalty is indeed a form of tax for exaction and Entry 49 of List II has no application to mineral bearing lands.

The eight judges overturned the observation by seven-judge bench of Supreme Court in India Cements judgment which held that royalty is tax.

CJI DY Chandrachud while delivering the verdict said that payments made to the government cannot be deemed to be a tax merely because a statute provides for its recovery in arrears. The top court held that States are not denuded of powers to levy cesses on mining or related activities.

Following the verdict, Solicitor General Tushar Mehta, Senior Advocates Arvind P Datar and Abhishek Manu Singhvi requested the Court to clarify that the judgment would operate only prospectively. However, the court today rejected this proposal and held that it shall apply retrospectively.