Supreme Court reserves order on whether verdict on states' power to tax minerals will apply retrospectively

A nine-judge Bench of the Supreme Court on Wednesday reserved its decision on whether its last week’s judgment upholding the power of states to tax mines and minerals rights would be applied retrospectively or prospectively.

Solicitor General Tushar Mehta told a Bench led by Chief Justice DY Chandrachud that any order giving retrospective effect would have huge impact on the economy and would put a potential liability of Rs 70,000 to Rs 80,000 crore on the public sector undertakings.

Opposing the stand of mineral-rich states seeking refund of the royalty levied by it on mines and mineral-bearing land since 1989, he argued that minerals were being used in every core sector, including in the manufacture of iron to steel, and thus will impact the economy of the nation critical to the infrastructure sector. And the burden of retrospective implementation will eventually go to the common man as the industry will pass on the financial burden to them.


“Can this burden of payment be shifted onto the new consumers? This will be acutely felt in the electricity sector as well. There are several domestic and international contracts based on the law prevailing at that time,” he said, adding that the payment if made retrospectively will have a “multipolar” impact and will open the floodgates of new litigations.

The mines were leased out in public auctions based on the 2015 amendments made to the Mines and Minerals (Development and Regulations) Act, 1957. The bids were formulated according to the then existing rates and now retrospective evaluation of tax would lead to a heavy load which may crush these sectors, he said.

The Solicitor General then went on to suggest that neither any state government should demand any levy retrospectively nor the private parties or PSUs would seek any refund.

Several mining operators supported the Centre's position on refund of royalty to the mineral-bearing states.

On July 25, the apex court in a majority 8:1 judgement upheld state governments' power to levy tax on mineral rights and mineral-bearing lands. It also ruled that royalty payable on minerals was not in nature of tax under the MMDR, Act but a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights, which would allow states to impose taxes on top of royalty.

Senior counsel Harish Salve said that the past dues of Mahanadi Coalfields would be in excess of the net worth of many companies and application of the judgment retrospectively would push companies to bankruptcy.

However, senior counsel Rakesh Dwivedi, appearing for Jharkhand Mineral Development Authority, said that the judgment should be given the full effect by making it retrospective. On the aspect of financial implications, he suggested that past arrears could be staggered and the payments can be made in instalments as then it would not have any cascading effects.

Odisha's Attorney General too informed the nine-judge bench that the latest ruling of the apex court should be made retrospective as the economy of the state is in "shambles". Similar submissions were made by Uttar Pradesh.