Refund of mineral royalties could cost Rs 70k-80k crore: Centre to SC

On July 25, a nine-judge constitution bench ruled that the power to tax mineral rights lies with the states and that royalty paid on minerals is not a tax.

The Centre has opposed a plea from mineral-rich states seeking a refund of royalties levied on mines and mineral-bearing land since 1989. It argues that any order requiring retrospective payment would have a "multipolar impact" on the economy. Solicitor General Tushar Mehta highlighted that such a refund would ultimately burden the common man, estimating the potential liability for public sector undertakings (PSUs) at Rs 70,000 to 80,000 crore.

Royalty not tax: SC verdict explained

On July 25, a nine-judge constitution bench, led by Chief Justice DY Chandrachud, ruled by an 8:1 majority that the power to tax mineral rights lies with the states and that royalty paid on minerals is not a tax. This decision overruled a previous judgment from the India Cements case, which had classified royalty as a tax.

Advocate Rakesh Diwedi, who represented Jharkhand, Odisha, and Assam in the hearing, explained that if royalty were a tax, it would impact states' taxing power under List II of the Seventh Schedule of the Constitution. With royalty not being a tax, states' tax laws on mineral-bearing land remain valid, allowing them to collect taxes.

The Supreme Court's ruling asserted that royalties and dead rent did not meet the characteristics of a tax.

During the July 25 hearing, the SC clarified the following:

• Entry 54 of List I, related to the Union's power over minerals, is regulatory and does not include taxing authority.
• States retain the legislative power to levy taxes on mineral rights.
• The term "land" in Entry 49 of List II (State List) includes mineral-bearing lands, granting states the competence to tax such lands.
• The ruling, however, gave rise to a new issue of the retrospective refund of the tax the Centre has taken from mines since 1989.

Centre's Opposition to retrospective refund of royalties

The Centre is now opposing applying the verdict retroactively, citing significant financial implications. Solicitor General Tushar Mehta argued that minerals are essential to every core sector of the nation and that retrospective refunds would severely impact the economy. He noted that states like Madhya Pradesh and Rajasthan, governed by the Bharatiya Janata Party, prefer the judgment to apply prospectively.

Chief Justice Chandrachud remarked that while the states have the power to tax, the issue at hand is whether new demands for the past period should be allowed. He expressed concerns about the practicality of imposing demands 24 years after the Jharkhand law was struck down.

The Supreme Court's ruling offers a substantial revenue boost to mineral-rich states, affirming their authority to tax mineral rights. However, the debate over the retrospective application of the verdict and its financial implications for the Centre continues.

The hearing on this matter is ongoing.