The Central government opposes states’ plea for refund of mining royalty

The Central government has opposed the plea of various states in the Supreme Court seeking a refund of royalty levied on mines and mineral-bearing land since 1989. Solicitor General Tushar Mehta informed the Supreme Court that the mining sector is crucial for India’s economy and any ruling in favor of the states could have a significant impact.

If the ruling were to be in favor of the states, it could potentially burden public units with over Rs 70,000 crore, according to Mehta, with the burden being three times more than the net worth of a particular unnamed company. The Solicitor General suggested that states should not demand the levy retrospectively, and that neither any PSU nor any undertaking should demand a refund of the money.

Representatives of various states, including Odisha and Jharkhand, have made their cases before the bench. Odisha’s Attorney General argued that the latest ruling should be made retrospective, citing the “shambles” state of the economy. Meanwhile, Senior Counsel Rakesh Dwivedi, representing Jharkhand, proposed staggering the payments in installments to mitigate potential cascading effects.

In a recent significant ruling, the Supreme Court held that royalty payable to minerals is not a tax, and only states have the legislative powers to impose such taxes on mines and mineral-bearing lands. This verdict, with an 8:1 majority and Justice NV Nagarathna dissenting, has sparked the plea from state representatives to make the ruling effective retrospectively and seek a refund from the Central government. However, the Centre has urged the Court to make the verdict prospective instead.

The apex court is set to decide whether the ruling should be retrospective or prospective on Wednesday.

The dispute over mining royalty traces back to the 1989 judgment in the India Cement Ltd case, where the Supreme Court decided in favor of the cement company. The Court ruled that royalty is a tax, and states had the power to collect royalty under the Mines and Minerals (Development and Regulation) Act (MMDRA), 1957, but could not impose further taxes on mining and mineral development.

This ruling was further clarified in 2004 during a dispute between the West Bengal government and Kesoram Industries, where the Court declared that royalty was not a tax.

With over 80 petitions related to this matter being filed over the years, the case was ultimately referred to a nine-judge bench to determine the nature of royalty and its classification as a tax. This ongoing case continues to hold significant implications for both the Central government and the states involved.