In a boost of sorts to the coffers of mines and mineral-rich states, the Supreme Court said on Wednesday that they can recover the past tax dues from the central and the state government undertakings and the private mining lease holders for the mines and mineral bearing land from April 1, 2005.

However, the dues arising from tax on the mines and mineral bearing lands for the past 19 years would be staggered and realised over a period of 12 years from now. However, the top court said that the States would not levy interest or penalty on the past dues from April 1, 2005 to July 25, 2024, for which demands would be raised by the states.

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The top court’s decision is, in a way, taking a middle path. The issue was whether the July 25 judgment would be effective from 1989 or it would be prospective from July 25, 2024.

A nine-judge constitution bench headed by the Chief Justice D.Y. Chandrachud rejected the central government’s argument that the judgement delivered on July 25 upholding the powers of the States to levy tax on mines and mineral bearing lands should be given prospective effect only.

Besides Chief Justice Chandrachud, other judges on the constitution bench included Justice Hrishikesh Roy, Justice Abhay S Oka, Justice B.V. Nagarathna, Justice J B Pardiwala, Justice Manoj Misra, Justice Ujjal Bhuyan, Justice Satish Chandra Sharma and Justice Augustine George Masih.

The nine-judge bench said this considering the option whether the enforcement of the tax on mines and mineral-bearing lands be applicable since 1989 would be prospective or retrospective. The Central government had argued that levy of tax should be prospective and not retrospective as any retrospective levy of tax would bring huge financial burden on the companies including public sector undertakings owned both by the Centre and the State governments.

The Centre had argued that making the July 25 judgments effective retrospectively would have cascading effects on prices and ultimately the common man would bear the brunt, as almost all industries are dependent on minerals.

On July 25, the nine-judge Constitution bench by a majority 8:1 verdict, had held that States have the power to levy tax on mines and minerals bearing lands under the Constitution and had also ruled that royalty payable on extracted minerals is not a tax.

The Chief Justice Chandrachud delivered the majority judgment and Justice Nagarathna delivered a dissenting judgment.

Justice Nagarathna in her dissenting judgment had said, “I hold royalty is in the nature of the tax. States have no legislative competence to impose any tax or fee on mineral rights. Entry 49 is not related to mineral-bearing lands. I hold India cement decision was correctly decided.”

However, the majority judgment authored by the Chief Justice Chandrachud said, “Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights. The liability to pay royalty arises out of the contractual conditions of the mining lease. The payments made to the Government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears.”

The majority judgment had further said that the legislative power to tax mineral rights is vested in the State legislatures and parliament does not have the legislative competence to tax mineral rights under Entry 54 of List 1, as it is being a general entry.

“The legislative power to tax mineral rights lies with the State legislature and the Parliament does not have the legislative competence to tax mineral rights,” said the majority judgment.

It further elaborated that “Since the power to tax mineral rights is enumerated in Entry 50 of List 2, Parliament cannot use its residuary power with respect to that subject matter,” it had added.

The top court further said that there should be no levy of interest or penalty for the demand made for the period before July 25, 2024.

The judgment by the nine-judge constitution bench came on the issue whether the royalty payable on minerals is a tax under the Mines and Minerals (Development and Regulation) Act, 1957, and if only the Centre is vested with the power to levy such exaction or states also have the authority to impose levies on mineral bearing land in their territory.

In the course of the hearing the top court had said that the Constitution vests the power to impose tax on mineral rights not in Parliament alone but also the states and underlined that such authority should not be diluted.