Supreme Court’s Decision on Mineral Rights Taxation: Prospective or Retrospective?

Supreme Court’s Decision on Mineral Rights Taxation: Prospective or Retrospective?

The Supreme Court of India’s nine-judge bench has reserved its order on whether its July 25 ruling, which upheld the states’ rights to levy taxes on mineral rights and mineral-rich lands, should be applied prospectively. This decision could have significant implications for the financial and legal landscape surrounding mineral taxation in India.

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Background of the Case

The issue at hand arose from the case Mineral Area Development Authority v. Steel Authority of India & Others, where the Supreme Court ruled on July 25 that states have the authority to impose taxes on mineral rights. The question now is whether this decision should apply only to future cases or if it should also affect past transactions and dues.

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State Governments’ Perspectives

Odisha’s Advocate General, Preetambar Acharya, stated that state laws primarily aimed at welfare measures for tribal populations in mining areas. He noted that states also benefitted from increased royalties imposed by the Union.

However, the bench requested a clear stance from the Advocate General on whether the decision should be applied retrospectively. Justice Oka advised against imposing their dilemma on the bench, while CJI humorously remarked on the Advocate General’s central position in the courtroom. Acharya noted that states like Rajasthan and Madhya Pradesh favored prospective application.

Advocates for Retrospective Application

Senior Advocate Rakesh Dwivedi, representing Jharkhand, argued for giving full effect to the decision by applying it retrospectively. He contended that allowing the decision only prospectively would render laws validly enacted by states ineffective until July 25. Dwivedi also referenced the 2004 decision in State of West Bengal v. Kesoram Industries Ltd., highlighting a need to consider whether the earlier India Cement or Kesoram decision would govern the pre-decision period.

In response to financial concerns, Dwivedi suggested phased payment of past dues. He emphasized that laws enacted by states like Rajasthan, Madhya Pradesh, Uttar Pradesh, and Chhattisgarh were upheld by respective High Courts without a Supreme Court stay. Dwivedi urged companies to disclose their balance sheets and submit affidavits to support claims of financial difficulty.

Jharkhand’s Advocate General, Rajeev Ranjan, argued that the court should not grant relief based on taxpayer companies’ claims of financial hardship, noting that funds collected by states also benefit the common man.

Senior Advocate Vijay Hansaria, representing Uttar Pradesh, stated that the High Court upheld the state’s tax, and the Supreme Court also approved it. Except for Hindalco and Kanoria Chemicals, all companies are paying the state tax.

Conclusion

The Supreme Court’s forthcoming decision on the retrospective or prospective application of its July 25 ruling will have profound implications for states and industries. The judgment will determine whether states can recover past dues and the financial responsibilities of companies involved in mineral extraction and related industries. As the legal community and industries await the court’s verdict, the outcome will shape the future of mineral rights taxation in India.