Mining Royalty Case: States Can Tax Mineral Rights Retrospectively, Says Supreme Court

The Supreme Court on Wednesday held that it's nine-judge bench verdict on the nature of mining royalty and state's power to tax mineral rights will be given retrospective effect, subject to some conditions.

The court said that the states will not be allowed to tax transactions made prior to April 1, 2005. Moreover, it said that the time for payment of tax can be staggered over 12 years commencing from April 1, 2026.

Lastly, the court said that interest and penalty on demands for period prior to July 25, 2024 shall stand waived.

In a landmark judgment delivered last month, 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 rests with state legislatures, and the Parliament does 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 for mining companies, the apex court agreed to consider this aspect.

During the hearing on its applicability, the centre informed the top court that if the verdict is applied retrospectively, then demands from various companies engaged in mining activities will be multiple times their net worth.

Counsels appearing for PSUs and private mining companies pegged the demand to be nearly Rs 2 lakh crore. It was stated that retrospective applicability of the judgment would result in an "ugly spectacle" of seeing these companies "go belly up".