Mining Royalty: Retrospective Application Will Bankrupt Firms, Centre Tells Supreme Court

If the mining-royalty judgment is made applicable retrospectively, demands from various companies engaged in mining activities will be multiple times their net worth, the Union government told the Supreme Court on Wednesday.

Arguing for a prospective application of the nine-judge bench verdict that held royalty is not a tax, Solicitor General Tushar Mehta said if the verdict is made applicable retrospectively, the approximate demand that various public sector undertakings in the mining business were expecting would be in the range of Rs 70,000–80,000 crore.

As soon as the price of basic minerals such as coal, bauxite and iron ore is affected, the burden will eventually go to the common people, according to Mehta. Senior advocates Arvind Datar and Harish Salve made similar arguments.

Datar said the demand from private mining companies would be upwards of Rs 1 lakh crore. He added that after the 1989 ruling, which held royalty to be a tax, the quantum of royalties was substantially increased so that the state exchequers did not face any loss of revenue.

Salve said a retrospective applicability of the judgment would result in an "ugly spectacle" of seeing these companies "go belly up".

A Travesty Of Justice?

Arguing against prospective application, senior advocate Rakesh Dwivedi said the court must take a balanced approach in dealing with this conundrum and could make the judgment operate with full effect, meaning retrospectively, subject to some conditions.

There is no judgment of this court that results in the validation of an existing legislation and the court still says that do not collect past dues, Dwivedi asserted.

Dwivedi suggested some conditions that the court can impose even while holding that the judgment will operate retrospectively. "One way is to stagger the payments that will be due. Another way is to modulate the interest component that will arise on the principal dues."

After hearing both the sides, the top court reserved its judgment in the matter and is expected to come out with a verdict very soon.

The Story So Far

In a landmark judgment delivered last week, a nine-judge bench of the top court ruled that royalty paid by a mining leaseholder to the lessor was not a tax but a contractual consideration for enjoyment of mineral rights. The court said the legislative power to tax mineral rights rested with state legislatures and the Parliament did not have the legislative competence to tax mineral rights.

The ruling put an end to a 35-year-old controversy regarding the nature of mining royalties paid by the leaseholders. However, as soon as the top court pronounced the judgment, the lawyers questioned the court regarding its applicability, meaning whether the judgment would be applied retrospectively or prospectively.

Since this issue is bound to have huge financial ramifications on mining companies, the apex court agreed to consider this aspect.