MINERAL AREA DEVELOPMENT AUTHORITY, ETC. vs M/S STEEL AUTHORITY OF INDIA, 2024
Case Title and Citation: MINERAL AREA DEVELOPMENT AUTHORITY, ETC. V. M/S STEEL AUTHORITY OF INDIA 2024 INSC 607 (14 August 2024)
Factual Background
On July 25, 2024, a Nine-Judge Bench of the Supreme Court delivered its ruling in Mineral Area Development Authority v. M/S Steel Authority of India (also cited as Mines and Minerals or MADA). In that preceding judgment, the Court held that the royalty levied under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act), is not a tax. The ruling further affirmed that States hold the power under Entries 49 and 50 of the State List to impose taxes on mineral-bearing lands and mineral rights. This effectively overruled the earlier Seven-Judge Bench decision, India Cement Ltd. v. State of Tamil Nadu (1989), which had prevented States from levying such taxes. Following the delivery of the Mines and Minerals judgment, the assessees (the corporations liable to pay state taxes) submitted that the decision should only be applied prospectively, meaning the state taxes on mineral rights should only become effective from July 25, 2024, onward.
Issue(s)
The central question before the Supreme Court was whether the declaration of law made in the Mines and Minerals judgment (2024 INSC 554), which upheld the States’ power to tax mineral rights, should apply only prospectively (to future transactions) or retrospectively (to past tax demands).
Decision of the Supreme Court
The Supreme Court dismissed the request for prospective application. The Court determined that the Mines and Minerals decision must apply retrospectively, thereby allowing State governments to demand and recover past tax dues related to Entries 49 and 50 of List II of the Seventh Schedule. However, the Court imposed conditions, ruling that the demand for tax cannot operate on transactions made prior to April 1, 2005.
Reason for the decision
The Court’s rationale centered on the doctrine of prospective overruling and the constitutional implications of invalidating sovereign taxing power:
- Doctrine of Prospective Overruling: The doctrine of prospective overruling is typically applied when the Court’s new declaration of law results in the invalidation of existing legislation that was previously held valid under the old law. This action is taken primarily to protect settled rights and obligations and to prevent the State from being liable to refund collected amounts under the newly invalidated legislation.
- Upholding Legislative Competence: In contrast, the Mines and Minerals decision upheld the legislative competence of the States to impose taxes. If the Court had applied this upholding decision prospectively, the State taxing laws enacted before July 25, 2024, would have had to be tested against the law laid down in the overruled India Cement decision. This would likely result in the invalidation of those State taxing laws, which the Court deemed an unjust outcome. The Court emphasized that taxing power is an incidence of sovereignty.
- Pragmatic Solution and Equity: The legal position regarding States’ taxing power had been unsettled due to conflicts between India Cement and State of West Bengal v. Kesoram Industries Ltd. (2004). To reconcile the financial interests of both States and assessees, the Court implemented a pragmatic solution.
- Cut-off Date: The Court established April 1, 2005, as the final cut-off date for recovery, recognizing that many States enacted taxing statutes based on the Kesoram Industries decision, which was delivered around that time. Prior to Kesoram Industries, the India Cement ruling had prevented States from taxing mineral bearing lands.
- Waiver of Interest and Installments: Considering the “long pendency” of the case (more than three decades) and the substantial amounts due (in the thousands of crores, creating a heavy financial burden), the Court exercised its power under Article 142. The Court directed that the requirement for assessees to pay interest and penalty on dues accrued before the judgment date (July 25, 2024) be waived. Furthermore, the payment of the recovered tax dues must be staggered into installments over a twelve-year period, starting from April 1, 2026.
Conclusion
The Supreme Court declined to apply the Mines and Minerals judgment prospectively, ensuring that the State legislatures’ constitutionally affirmed sovereign taxing power is upheld retrospectively. However, to achieve a balance of equity due to the historic confusion in the legal position, the Court limited the retrospective effect: tax recovery is barred for the period preceding April 1, 2005, and all outstanding interest and penalties on past demands are waived.
Case Materials
Day 1 of Arguments: 31 July 2024 (Argument Transcript)|(Video Recording)
