New Delhi: Giving a financial boost to mineral-rich states, a nine-judge bench of the Supreme Court has clarified that its judgment on the issue of the rights of the states to collect taxes on mineral lands and rights will not have prospective effect and has imposed conditions on its implementation.
Demands will not be for transactions carried out before April 1, 2005: Apex Court
The court on Wednesday reiterated that states have the right to raise demand taxes but the demands will not be for transactions carried out before April 1, 2005.
The court also said that the demand for tax so made by state governments may be staggered over a period of 12 years.
Clarification by apex court comes on a demand by Centre for prospective implementation of judgment
The clarification by the court comes on a demand by the central government for prospective implementation of the judgment as retrospective implementation will have an impact on the economy.
Government of India had opposed retrospective application of the judgment, saying if the mining sector is impacted everything gets impacted from nano technology to health care.
What did the Centre submit?
Solicitor General of India Tushar Mehta, appearing for the government of India, had on July 31 submitted to the court that if the judgment is allowed to be implemented retrospectively, it will have a cascading effect on the economy and the public sector units and also private industry and ultimately the impact will be transferred to the consumers.
Mehta also argued that going by a rough estimate of the demand by the state governments on the PSUs due to retrospective application of the judgment would be around Rs 70,000 to 80,000 crore.
In some cases the demand potential demand will be 3 times the net worth of the company, Mehta added.
Government also submitted that domestic and international treaties too will be impacted due to the retrospective application of the judgment as after the judgment the financials have changed.
Jharkhand government opposed prospective application of law
The Jharkhand government opposed prospective application of the law saying it would be travesty of law. Moreover, if the judgment is prospectively applied all laws enacted by states will become invalid, which is a peculiar situation because the Supreme court has upheld the power of states to tax mineral lands.
The Jharkhand government had suggested that the application of the law should not be interfered with by the court could impose constitutionalities on its implementation.
A nine-judge bench of Justice DY Chandrachud, Justice Hrishikesh Roy, Justice AS Oka, Justice BV Nagarathana, Justice JB Pardiwala, Justice Manoj Misra, Justice SC Sharma and Justice AG Masih were called to decide on the issue if the state government had the power to impose tax on lands bearing mineral and if Royalty imposed on leases can be construed as tax.
The court had on July 25 by a 8-1 Majority held
1.The State legislatures have legislative competence to tax lands which comprise of mines and quarries.
2.Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights. The liability to pay royalty arises out of the contractual conditions of the mining lease. The payments made to the Government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears
