What SC Said on Retrospective Application of Tax on Minerals?

14 Aug 2024 , 01:16 PM

The Supreme Court on Wednesday ruled that states are permitted to levy royalty on mining activities with effect from April 1, 2005. This decision follows the court’s July judgment affirming the states’ rights to impose taxes and royalties on mining.

Several affected parties had petitioned the court to impose the royalty only prospectively, but the court has provided a clear directive. Here are the key points from the nine-judge bench’s ruling:

• No Retrospective Tax Demand: The demand for tax shall not apply to transactions made before April 1, 2005.
• Staggered Payment Plan: Tax payments shall be staggered over twelve years, starting from April 1, 2026.
• Waiver of Interest and Penalty: The levy of interest and penalties on demands for the period before July 25, 2024, shall be waived for all assesses.
• Financial Impact: The Steel Authority of India (SAIL) stated in an affidavit that applying the tax retrospectively would revive cumulative demands of approximately ₹3,000 crore.
• Government’s Position: The Solicitor General argued that the total amount due from assesses, including public sector undertakings, is substantial and would impose a heavy financial burden on the companies.
• Applicability of the Order: The order applies to all assesses, regardless of whether they have approached the court.

Timeline of the case:

1990:  India Cement Ltd. v. State of Tamil Nadu : A seven-Judge bench of SC says royalty is tax and the states cannot levy taxes on mineral rights

2004: State of West Bengal v. Kesoram Industries Ltd: A Constitution Bench held that the decision in India Cement case stemmed from an inadvertent error and clarified that royalty is not a tax.

2024 : Mineral Area Development Authority v. SAIL: SC holds that Royalty is payable to states on mineral is not a tax