SC reserves decision on whether its verdict upholding State’s right to tax mineral rights should apply only prospectively
On July 25, the Constitution Bench, in a majority judgment of 8:1 ratio har held that the power of State legislatures to tax mineral-bearing lands and quarries cannot be limited by the Parliament
The Supreme Court’s judgment on July 25, 2024 freed States from the restrictions of the Centre and was in tune with the federalist principles of governance. File
| Photo Credit: Shashi Shekhar Kashyap
A nine-judge Bench of the Supreme Court on July 31 reserved for orders a query raised by the Centre on whether its July 25 judgment upholding the power of State Legislatures to tax mines and minerals rights would be applied retrospectively.
Appearing before the Bench headed by Chief Justice of India D.Y. Chandrachud, Solicitor General Tushar Mehta urged the court to clarify that the judgment would only apply prospectively, that is, from July 25 and not prior.
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Mr. Mehta said allowing States to demand retrospective taxes on mines and minerals rights would have a “cascading effects” whose impact would ultimately impact the common man.
He said industries, including public sector undertakings involved in the manufacture of iron to steel, relied on the mines.
The mines were leased out in public auctions based on the terms of the 2015 amendments made to the Mines and Minerals (Development and Regulations) Act of 1957. The bids were formulated according to the then existing rates. Retrospective evaluation of tax would lead to a heavy load which may crush these sectors.
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“Lordships may consider stating 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,” Mr. Mehta submitted.
Senior Advocate Harish Salve, appearing for Mahanadi Coalfields, submitted that past levy demands may be more than the net worth of many companies. Retrospective implementation of the judgment ran the risk of bankrupting these companies.
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On July 25, the Constitution Bench, in a majority judgment of 8:1 ratio har held that the power of State legislatures to tax mineral-bearing lands and quarries cannot be limited by the Parliament.
The judgment freed States from the restrictions of the Centre and is in tune with the federalist principles of governance.
“Fiscal federalism entails that the power of the States to levy taxes within the legislative domain carved out to them and subject to the limitations laid down by the Constitution must be secured from unconstitutional interference by Parliament,” Chief Justice Chandrachud had laid down in the judgment.
The verdict noted how mineral-rich States like Chhattisgarh, Jharkhand and Odisha continue to have per capita income below national averages and trail in economic development.
The court had further held that royalty paid to States by mining lease holders was not tax.
“Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights,” Chief Justice Chandrachud noted in his majority opinion.
Protecting States’ right to tax mineral rights, Chief Justice Chandrachud had said State legislatures derive their power to tax mines and quarries under Article 246 read with Entry 49 (tax on lands and buildings) in the State List of the Seventh Schedule of the Constitution.
“Any dilution in the taxing powers of the State legislatures will necessarily impact their ability to raise revenues, which in turn will impede their ability to deliver welfare schemes and services to the people.The ability of the State Governments to invest in physical infrastructure, health, education, human capacity, and research and development is directly co-related to the raising of government revenues,” the judgment had reasoned.
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