States Can Recover Past Tax Dues On Mineral Rights, But Not For Period Before April 1, 2005 : Supreme Court
The Supreme Court on Wednesday (August 14) rejected the argument that its judgment delivered on July 25 upholding the powers of the States to tax mineral rights and mineral-bearing lands should be given only a prospective effect from the date of the judgment.This means that the Court has allowed the States to recover the tax dues for the past period based on the judgment in Mineral...
The Supreme Court on Wednesday (August 14) rejected the argument that its judgment delivered on July 25 upholding the powers of the States to tax mineral rights and mineral-bearing lands should be given only a prospective effect from the date of the judgment.
This means that the Court has allowed 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.
At the same time, the 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.
The Court also stated that the tax arrears can be paid over a staggered period of 12 years from April 1, 2026.
The Court further stated that there should be no levy of interest or penalty for the demand made for the period before July 25, 2024.
CJI Chandrachud read out the conclusions of the bench as follows :
1. The submission that the judgment in Mineral Area Development Authority (MADA) should be given prospective effect is rejected.
2. Bearing in mind the consequences that would emanate from the past period, the following conditionalities are directed to prevail -
(a) While the States may levy tax or revenue for the period pertaining to Entries 49 and 50 of List 2 in terms of the law laid down in MADA, the demand of tax shall not operate on transactions made prior to 1 April, 2005.
(b) The time for payment of demand of tax shall be staggered in instalments over a period of 12 years commencing from April 1, 2026.
(c) The levy of interest and penalty on demand for the period before July 25, 2024 shall stand waived for all assesses.
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.
CJI also said that the present order will be signed by only 8 judges as Justice Nagarathna had dissented in the original judgment of July 25.
On July 25, the Court held by an 8:1 majority that States have the power to levy tax on mineral rights and that the Union law - Mines and Minerals (Development and Regulation) Act 1957 - do not limit such power of the States.
The 9-judge bench which delivered the judgement was headed by CJI DY Chandrachud and comprises Justices Hrishikesh Roy, Abhay Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma and 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.
After the judgment was pronounced, the Union and certain assesses made a demand that the judgment should be given only propsective effect. Following that, the 9-judge bench held a hearing on this aspect on July 31.
During the hearing on the said issue of prospective application, Solicitor General of India 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 9-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 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, appearing for mining companies, also raised similar arguments.
While on the other hand, Senior Advocate Rakesh Dwivedi, 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.
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 also pointed out that in 2004, the judgment in State of West Bengal v. Kesoram Industries Ltd(which differed from India Cements) came. Therefore, 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.
Responding to the concerns raised by the other side regarding financial implications, Dwivedi suggested that the past arrears could be paid in a staggered manner in instalments.
Senior Advocate Vijay Hansaria, for the UP mineral board, also supported Dwivedi's arguments.
Other relevant reports on the decision can be read here.
Case Details : Mineral Area Development Authority v. M/S Steel Authority Of India & Ors (CA N0. 4056/1999)
Citation : 2024 LiveLaw (SC) 577
Click Here To Read/Download Judgment