August 14th 2024.
The Supreme Court has made a significant ruling in favor of states that are rich in minerals. On Wednesday, the court declared that these states have the right to demand payment of royalties and taxes from the Centre starting from April 1, 2005. This decision was made by a nine-judge Constitution bench, with Chief Justice DY Chandrachud at the helm. The argument for prospective effect of July 25 has been rejected by the bench.
Chief Justice Chandrachud, speaking on behalf of the bench, stated that the court had previously addressed the questions presented to them on July 25 and had determined that the legislative power to tax mineral rights lies with the states. After the verdict was announced, the assessees requested that the decision be applicable only for future transactions. However, the matter was listed for July 31 to determine the effect of the verdict.
The Centre has opposed the states' demand for a refund of royalties collected on mines and minerals since 1989, stating that it would negatively impact citizens and result in a loss of Rs 70,000 crore for public sector undertakings. The bench has rejected the submission that the Mineral Area Development Authority Act should be given prospective effect and has laid out conditions for the payment of dues by the Centre and mining companies, including Public Sector Undertakings, to the states.
The bench has clarified that while states have the authority to levy or renew taxes on lands and buildings and mineral rights, any demands made prior to April 1, 2005 will not be affected. The bench, consisting of justices Hrishikesh Roy, Abhay S Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih, has also directed that the payment of taxes be staggered over a period of 12 years, starting from April 1, 2026.
In addition, the Supreme Court has waived the levy of interest and penalty on any tax demands made by states on the Centre and mining companies before July 25, 2024. Chief Justice Chandrachud has stated that this verdict will be signed by eight judges, as Justice Nagarathna, who gave a dissenting view in the July 25 verdict, will not be signing. Senior advocate Rakesh Dwivedi, representing Jharkhand, has raised the issue of the state's Act to collect royalty on minerals and mineral-bearing land, which was previously set aside and now needs to be upheld.
Dwivedi has requested that the matter be listed before an appropriate bench at the earliest, as the decision of the Ranchi bench of the Patna High Court on March 22, 1993 had struck down Section 89 of the Mineral Area Development Authority Act of 1992. This section gave the state government of undivided Bihar the power to impose taxes on not only mineral-bearing land, but also land used for commercial or industrial purposes. Chief Justice Chandrachud has assured Dwivedi that he will issue directions for urgent listing of the matter.
During the hearing on July 31, the Centre and mining companies had opposed the states' demand for a refund of royalties collected since 1989. The July 25 verdict had overturned a previous judgement from 1989 and subsequent decisions of the apex court, which stated that only the Centre had the authority to impose royalties on minerals and mineral-bearing land. This prompted some opposition-ruled states with abundant mineral resources to request a refund of royalties collected by the Centre and taxes from mining companies since the 1989 verdict. The matter of the refund was heard on July 31 and the order was reserved.
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