Mining of minerals since 1989: Centre not for refund of royalty to states

The Centre on Wednesday opposed in the Supreme Court a demand by states for refund of royalty levied on mines and minerals since 1989, saying it will impact citizens and the PSUs will have to empty their coffers by Rs 70,000 crore according to initial estimates. A nine-judge constitution bench headed by Chief Justice DY Chandrachud reserved its orders on the issue of whether its July 25 verdict upholding the power of states to levy tax on mineral rights and mineral-bearing land should be given retrospective or prospective effect. In a majority 8:1 verdict on July 25, the bench had held that legislative power to tax mineral rights vests with states.

The verdict had overruled a 1989 judgement which held that only the Centre has power to impose royalty on minerals and mineral bearing land. Some opposition-ruled mineral rich states are now seeking refund of royalty levied by the Centre and taxes from the mining companies since the 1989 verdict. The bench also comprising Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih was told by Solicitor General Tushar Mehta, appearing for the Centre, that making the July 25 verdict retrospective will have cascading effects as companies will pass on the financial burden on citizens. He said the 1989 verdict had held the field for 35 years and the financial impact of the July 25 judgement will be on companies undertaking mining operations, which will be different for each state.

“A preliminary estimate of the potential financial impact of the judgement due to past State levies which may become due (in the form of additional state levies of taxes, interest and penalties) on only the Public Sector Units (PSUs) engaged in mining, and in production activities dependent on minerals (like electricity production), is to the tune of Rs 70,000 crore,” he said. The CJI asked Mehta what was the interim arrangement when the case was pending consideration before the court. Mehta replied that some states like Odisha did not raise any demand after the 1989 verdict, while some raised. Giving an example without taking the name of a stock market listed PSU, he said, if the July 25 verdict is to have a retrospective effect, then the potential demand of tax is three times the net worth of the company, which is a profit making ‘Maharatna’ firm.

The solicitor general said the PSU will have a demand of principal amount of Rs 35,000 crore and with interest it will be Rs 55,000 crore while the company’s net worth is Rs 14,000 crore. Observing that the States do need revenue, the CJI said, “Prima facie there is no question of prospective overruling. We cannot be oblivious of the fact that in some states, their law levying taxes was struck down (post 1989 verdict). We need to see what kind of conditionalities can be put if we make it retrospective. This is of course subject to discussions among other members of the bench.” Senior advocate Rakesh Dwivedi, appearing for Jharkhand, said certainly conditions could be put like there can be staggered payment of refund amount, it should be limited to mineral bearing land. “If they (some states) don’t want it (refund), then no one is stopping those states from enacting a law in this regard,” Dwivedi said. Mehta said the impact of the July 25 verdict is “substantial and far reaching and this impact will be felt in the market for every mineral and by extension in every one of the core sectors of the economy.”

Urging the court to exercise its plenary powers under Article 142 of the Constitution to mould the relief in the interest of justice, Mehta said the consistent approach of the apex court, particularly in tax matters, is that it has not ordinarily disturbed past or concluded transactions. “Accordingly, and in exercise of its power to do complete justice under Article 142, this court may be pleased to direct that where the operation of the state laws in issue was either partially or fully interdicted by judicial orders, with the result that nil or partial recovery of tax liability has been made during the pendency of the present reference, no further demands shall be made under these laws for the past period, i.e., for any date prior to July 25, 2024,” he said.

Attorney General R Venkataramani, also appearing for the Centre, argued that any order asking the government to pay the alleged dues with retrospective effect will have a “multi-polar” impact. Mehta informed the bench that adopting a citizen-centric approach, Madhya Pradesh and Rajasthan have decided to seek prospective effect of the July 25 verdict. However, Odisha’s advocate general Pitambar Acharya did not clarify th e state’s stand on retrospective or prospective effect of the verdict and said the state has commitment towards the welfare of its people. “Don’t pass on your dilemma to the court,” the bench told Acharya, while asking him to clearly say whether the state is supporting prospective or urging for retrospective effect. Acharya, however, again evaded direct answer and perhaps referred to change in political dispensation in the state saying, “The situation in the state has changed and I have been given the responsibility (of advocate general) a couple of days back.” Many firms involved in mining activities also supported the Centre’s view on refund of royalty to mineral-bearing states.