SC allows states to seek refund of royalties on minerals from Centre

The court ruled that the payment of these demands shall be staggered in instalments over a period of 12 years, commencing from April 1, 2026

The Supreme Court on Wednesday allowed states to collect dues retrospectively on royalty on mineral-bearing land from Centre and mining companies from April 1, 2005 onwards.

The Court said payment of dues by the Centre and mining companies can be made to mineral-rich states in a staggered manner over the next 12 years.

“The time for payment of demand for tax shall be staggered in installments over a period of 12 years commencing from April 1, 2026,” the court said.

The Court also said that levy of interest and demand of penalty made on or before July 25, 2024 shall stand waived off.

A nine-judge Constitution bench that gave the ruling was headed by Chief Justice DY Chandrachud. It also comprised Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih.

Justice Nagarathna did not sign the judgment since she had dissented in the main judgment of July 25.

The bench, in 8:1 majority, had on July 25 held that states have the power to levy cess on mining and mineral-use activities. It also upheld that the royalty paid by mining operators to the Central government is not a tax.

The court also stated that states’ power to tax is not limited by Parliament’s Mines and Minerals (Development and Regulation) Act of 1957.

After the nine-judge bench gave its ruling on July 25, the Court reserved its orders on whether the ruling should have a retrospective or prospective effect.

Senior Advocate Rakesh Dwivedi, who appeared for Jharkhand, had argued that the judgment should apply retrospectively as applying it prospectively will mean laws enacted by the states before July 25 with regard to mineral taxes would be ineffective.

Meanwhile, Solicitor General Tushar Mehta, appearing for the Centre, argued that allowing retrospective demands by states would have a “cascading effect” on prices and ultimately the common man would bear the brunt, as almost all industries are dependent on minerals.

He said that the parties who had participated in the auction for mining leases had formulated their bids as per the 2015 amendment to the Mines and Minerals (Development and Regulation) Act.

The retrospective effect of the judgment could impose severe financial repercussions on mining industries as bid rates and operational expenses would have to be calculated according to the rates existing at that time which could lead to a slew of new litigations, said SR Patnaik, partner (Head-Taxation), Cyril Amarchand Mangaldas.

“The financial demands from the retrospective levies might exceed the net worth of many companies, pushing them towards bankruptcy,” he added.