SC refuses to restrict States’ power to tax mines only prospectively
- The Supreme Court verdict on States’ power to tax mining activities
Highlights:
- The Supreme Court declined pleas by assessees, including public sector undertakings, to restrict its July 25 majority judgment, which upheld States’ power to tax mines and minerals rights, to have only prospective effect.
- The court declared that States could levy tax on mines and mineral rights from April 1, 2005.
- Demands of tax would not operate for transactions prior to this cut-off date.
- The Bench clarified that there would be no interest or penalty imposed on the assessees for tax due from the cut-off date of April 1, 2005 and the date of the judgment, July 25, 2024.
- The total amount, that is the principal plus the interest, due by the assessees in the pending matters may be substantial in comparison to their total net worth.
- Steel Authority of India has stated on affidavit that retrospective application of the July 25 judgment will lead to revival of cumulative demands to the tune of approximately ₹3,000 crore from different States
- The court noted that a few States have decided against collecting tax dues accrued before the July 25 judgment.
- In 1989, India Cements versus State of Tamil Nadu saw a Constitution Bench hold that “royalty is tax” and State legislatures had no legislative competence to impose cess on royalty.
- But, in January 2004, another Constitution Bench, in State of West Bengal versus Kesoram Industries, held that “royalty is not a tax” and “the power to levy tax on mineral rights vests with the State legislatures”.
- States like Chhattisgarh, Madhya Pradesh and Rajasthan had followed West Bengal’s example in the aftermath of the Kesoram judgment and enacted legislation taxing their mines and mineral rights.
- Assessees had argued that allowing States to demand retrospective taxes on mines and minerals rights would have a “cascading effect” whose impact would ultimately impact the common man.
Prelims Takeaway
- Taxation
- Royalty