SC Allows Mineral-rich States To Recover from Union Govt Royalty and Tax Dues since 2005
Moneylife Digital Team 14 August 2024
A nine-judge bench of the Supreme Court (SC) allowed mineral-rich states to recover from the Union government and mining companies royalty and tax dues on mineral rights and mineral-bearing lands worth thousands of crore of rupees since 1 April 2005 over 12 years from 1 April 2026.
 
Pronouncing a related judgement, SC held that its 25 July 2024 judgement enabling state governments to tax mining and related activities would apply retrospectively but concerning transactions after 1 April 2005.
 
A bench of chief justice of India (CJI) DY Chandrachud with justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih delivered the verdict.
 
The bench says that the time for payment of tax demand shall be staggered in instalments over 12 years commencing from 1 April 2026. 
 
The apex court also ordered that the levy of interest and demand of penalty made on or before 25 July 2024, shall stand waived.
 
Justice Nagarathna did not sign the judgement since she had dissented in the main judgement of 25th July.
 
Last month, the nine-judge bench held that royalty paid by mining operators to the Union government is not a tax and that states have the power to levy cess on mining and mineral-use activities.
 
The SC ruled that the Mines and Minerals (Development & Regulation) Act (Mines Act) will not denude the states of the power to levy tax on mineral rights.
 
Reading out the majority judgement, CJI Chandrachud said: "Royalty is not in the nature of tax ... We conclude that the observation in India Cements judgement stating that royalty is tax is incorrect... Payments made to the government cannot be deemed to be a tax merely because a statute provides for its recovery in arrears." (Read: Supreme Court Rules States Have Right To Levy Tax on Mineral Rights, Justice BV Nagarathna Dissents)
 
However, the matter was listed and heard again to decide whether the 25th July judgement would apply prospectively or retrospectively. 
 
Various states and the Union government argued that 25th July judgement should be strictly prospective to avoid commercial losses for public sector companies.
 
The bench, however, rejected the arguments of the Union government and mining companies, including public Sector undertakings (PSU), for operationalising the 25th July verdict with prospective effect. 
 
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