Bonanza for states as SC allows them to recover royalty dues

Satya Prakash

Tribune News Service

New Delhi, August 14

The Supreme Court on Wednesday ruled that states were entitled to collect past dues on royalty on mineral rights and mineral-bearing land from the Centre and mining companies since April 1, 2005 on the basis of its July 25 verdict.

Declaring that royalty payable on minerals is not a tax, a nine-judge Constitution Bench-led by CJI DY Chandrachud had on July 25 by 8:1 majority ruled that states had the legislative competence to impose taxes on mineral rights and mineral-bearing land. However, it held that Parliament has “wide enough” powers to impose restrictions, conditions, principles and prohibition on the legislative field created by that entry under Entry 50 of List II of the Seventh Schedule of the Constitution.

The Centre had contended that the verdict should be given only prospective effect as it will lead to revival of cumulative demands to the tune of approximately Rs 3,000 crore from various states. Without naming a profit-making stock market listed ‘Maharatna’ PSU, Solicitor General Tushar Mehta had said if the July 25 verdict was given a retrospective effect, the potential demand of tax was three-times the net worth of the company.

Some opposition-ruled mineral-rich states had sought refund of the royalty levied by the Centre and taxes from the mining companies since the 1989 verdict. BJP governments of Madhya Pradesh and Rajasthan had, however, favoured prospective effect to be given to the July 25 verdict. On Wednesday, the Bench rejected the Centre’s demand for prospective implementation of its July 25 ruling.

However, bearing in mind the consequences that would emanate from the past period, the top court imposed certain conditionalities with regard to retrospective implementation of the verdict.

“While the states may levy or renew demands of tax, if any, pertaining to Entries 49 and 50 of List II of the Seventh Schedule in terms of the law laid down in the decision in MADA (Mineral Area Development Authority and Anr. Versus M/S Steel Authority of India and Anr Etc. — July 25, 2024) the demand of tax shall not operate on transactions made prior to April 1, 2005,” the Bench said.

“The time for payment of the demand of tax shall be staggered in instalments over a period of 12 years commencing from April 1, 2026; and the levy of interest and penalty on demands made for the period before July 25, 2024 shall stand waived for all assesses,” the CJI said, pronouncing the verdict.