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Informist, Wednesday, Aug 14, 2024

 

--SC: Order on states' power to tax minerals applies retrospectively 

--SC: State governments can levy, renew demand for taxes 

--SC: Tax demand shall not operate on transactions before Apr 1, 2005 

--CONTEXT: On Jul 25, SC upheld states' power to tax mineral rights 

--SC: States can impose levies with effect from Apr 1, 2005 

--SC: States not to impose penalties or tax for past demands 

 

NEW DELHI – The Supreme Court today held that its verdict upholding the power of state governments to tax mineral rights and mineral-bearing lands would apply retrospectively. The top court said state governments can levy and renew the demand for taxes, but they shall not operate on transactions made prior to Apr 1, 2005.

 

The Bench, led by Chief Justice of India D.Y. Chandrachud, said the time for payment of demand for tax shall be staggered in instalments over a period of 12 years commencing from Apr 1, 2026. The court said the levy of interest and demand for penalty made on or before Jul 25 this year shall stand waived off.

 

The apex court on Jul 25 upheld state governments' power to levy tax on mineral rights and mineral-bearing lands in a majority 8-1 judgement. The top court held that royalty payable on minerals was not like a tax under the Mines and Minerals (Development and Regulation) Act, 1957.

 

Solicitor General Tushar Mehta had said that an order giving retrospective effect to the verdict would lead to a potential demand of 700 bln rupees to 800 bln rupees for public sector companies. Mehta said minerals are used in every core sector of the nation and will affect the sectors critical to the infrastructure sector. "Can this burden of payment be shifted onto the new consumers? This will be acutely felt in the electricity sector as well. There are several domestic and international contracts based on the law prevailing at that time," he added. 

 

The solicitor general said the burden of retrospective effect would eventually go to the common man, as no industry can absorb that. The apex court on Jul 25 overruled its 1990 verdict, which rejected the power of state governments to tax minerals and mineral-bearing lands. Mehta said the previous ruling had held on for over 35 years and the positions which the parties had been following based on that precedent would be upset if the judgement was made retrospective.

 

Advocate Harish Salve, appearing for Mahanadi Coalfields Ltd, said 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. Mehta urged the court to use its "complete justice" powers as the order would affect the common man.  

 

The case has its genesis in a dispute between India Cements Ltd and the Tamil Nadu government. India Cements secured a mining lease from the state government and was paying it a royalty. However, the state government imposed a cess in addition to the royalty on the company. Consequently, India Cements moved the Madras High Court against the state government's decision and the case reached the top court after some litigation.

 

In 1989, a seven-judge bench of the apex court ruled in favour of India Cements. The bench said the Centre was the primary authority under the Mines and Minerals (Development and Regulation) Act in regard to regulating mines and mineral development. The top court held that states could collect a royalty under the Mines and Minerals (Development and Regulation) Act, but could not impose further tax on mining and mineral development. The court held that royalty was a tax and, as such a cess on royalty being a tax on royalty, was beyond the competence of the state legislature.

 

In 2004, a five-judge bench of the top court, while hearing a different case, observed that there was a typographical error in the 1989 verdict and said royalty was not a tax. Thereafter, more than 80 petitions have been filed in the apex court over the years on the issue. 

 

The apex court thereafter pronounced its verdict on Jul 25 on a batch of appeals filed by different state governments, mining companies and public sector undertakings. Some of the state governments, such as Jharkhand, Andhra Pradesh and Odisha, said the power to collect tax on minerals is exclusive to state governments. The Centre and mining companies said the power to collect tax is restricted by the Mines and Minerals (Development and Regulation) Act.  End

 

Reported by Surya Tripathi

Edited by Vidhi Verma

 

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