Supreme Court: In a matter concerning the question of applicability of the judgment dated 25-07-2024 in Mineral Area Development Authority v. SAIL, 2024 SCC OnLine SC 1796 (‘MADA’) , the 8 judges, who wrote the majority view in the 9- Judge Constitution Bench verdict, directed that 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 (supra), the demand of tax shall not operate on transactions made prior to 1-04-2005.
Earlier, on 25-07-2024, the bench of Dr. DY Chandrachud, CJI, Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih JJ., in a majority of 8:1, held that royalty paid by mining operators to the Central government is not a tax and that States have the power to levy cesses on mining and mineral-use activities. Justice BV Nagarathna gave a dissenting opinion.
Background:
In India Cement Ltd. v. State of T.N., (1990) 1 SCC 12, a 7-Judge Bench held that royalty is tax. Resultantly, it was held that the State legislatures have no legislative competence to impose cess on royalty under Entries 23 and 50 of List II. Fifteen years later, a Constitution Bench in State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201 held that royalty is not a tax. It was further held that the power to levy tax on mineral rights vests with the State legislatures and is subject to any limitations laid down by Parliament by law relating to mineral development. Given this divergence, reference was made to a larger Bench. MADA (supra) has laid down the principles for interpreting Entry 54 of List I and Entries 23 and 50 of List II. In the process, Supreme Court overruled India Cement (supra).
After the judgment in MADA (supra), the Union made a demand that the judgment should be given only prospective effect. Following that, the 9-judge bench held a hearing on this aspect on 31-07-2024 and reserved its verdict on the applicability of the 25-07-2024 judgment.
Analysis and Decision:
The Court reiterated that the doctrine of prospective overruling is applied when a Constitutional Court overrules a well-established precedent by declaring a new rule but limits its application to future situations.
The Court while rejecting the argument that its judgment dated 25-07-2024 upholding the powers of the States to tax mineral rights should be given prospective effect only, directed that 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 (supra) the demand of tax shall not operate on transactions made prior to 1-04-2005.
The Court also said the time for payment of demand for tax shall be staggered in installments over 12 years from 01-04-2026.
The Court further stated that there should be no levy of interest or penalty for the demand made for the period before 25-07-2024.
Also read:
Supreme Court on Parliament’s power to impose limitations on State to levy tax on mineral rights
