The Supreme Court of India has ruled that states can retrospectively levy or renew taxes on mineral rights starting from April 1, 2005, dismissing the argument that such taxation authority should only be applied from July 25, the date of the court's previous judgment. This ruling came as a significant clarification from the top court on Monday.
In its earlier judgment on July 25, the Supreme Court's Constitution Bench affirmed that states have the power to impose taxes on mineral rights and mineral-bearing lands. The court ruled that the Union's Mines and Minerals (Development and Regulation) Act of 1957 does not restrict this taxing power of the states. However, the central government and various mining companies contended that any new taxes or renewed demands should only take effect from the date of the court's judgment and should not be applied retrospectively.
Rejecting this contention, the Supreme Court made it clear that states are authorized to levy and renew tax demands retroactively, with the stipulation that these demands shall not be applied to transactions that occurred before April 1, 2005. Chief Justice DY Chandrachud, delivering the order, explicitly stated that the judgment in the Mineral Area Development Authority (MADA) case should not be given prospective effect, thereby allowing states to enforce the taxation retrospectively.
The court also laid down specific conditions regarding the payment and application of these taxes. It ruled that the tax demands should be paid in installments over 12 years, starting from April 1, 2026. Importantly, the court also mandated that no interest or penalties should be levied on tax demands related to the period before the July 25, 2024, judgment.
During the proceedings, Solicitor General Tushar Mehta, representing the central government, expressed concerns that retrospectively applying the July 25 judgment could disrupt long-standing tax practices that had been in place for approximately 35 years since a 1990 case, which the Supreme Court has now overturned. He warned that such retrospective application could lead to increased costs for companies, which might have a cascading effect on prices, ultimately burdening the general public.
On the other hand, Senior Advocate Rakesh Dwivedi, representing the state of Jharkhand, argued that the judgment should be applied retrospectively to uphold the validity of state-enacted laws that would otherwise be considered ineffective until July 25. Other states' counsels also supported the argument for retrospective taxation, emphasizing the importance of enforcing state tax laws that had been in place.
The Supreme Court's bench, led by Chief Justice Chandrachud and comprising Justices Hrishikesh Roy, Abhay Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih, reserved the verdict on July 31. The ruling is expected to have far-reaching implications for both the mining industry and state governments, particularly in terms of revenue collection and regulatory enforcement.
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