Supreme Court walks a tightrope in allowing states to retrospectively levy tax on mineral extraction

mineral

By Aakash Bajaj 

The Court has held that it generally does not apply a judgment prospectively when upholding the legislative competence of legislature. In this case, the Court by the judgment dated 25 July, 2024 has upheld the legislative competence of the state legislature. Moreover, if the judgment is given a prospective application, then all the relevant state legislations enacted before 25 July 2024 may conceivably be invalidated, requiring the states to refund the amount collected from the assesses. This will not be an equitable outcome. Resultantly, the Court refused to apply the principle of prospective overruling.

However, to reconcile the financial interest of the States and the assesses, the Court has directed that (a) State shall not demand the subject taxes pertaining to period prior to the Kesoram judgment, that is, before 1 April 2005; (b) the levy of interest and penalty on demands made for period prior to 25 July 2024 shall stand waived.

The judgment has various implications.

Even the principal tax amount for the last 20 years is substantial. It is some respite to the industry that the same has to be paid by instalments spanning over 12 years starting from April 2026. We have already seen the colossal adverse impact of one-time payment by industry when coal block was cancelled, and additional levy was directed to be paid.

This may further widen the gap between export and import of steel in India. In the past couple of years, it has been noticed that while import of steel has increased considerably, the export has gone down.

The bids for mines under the Auction Rules post-2015 were made without taking into account these levies. Hence, the commercials for such mines have to be re-evaluated. We will also see a paradigm shift in the commercials of mines sought to be auctioned in the future.

Also, the States have been left with the discretion to forego the dues prior to 25 July, 2024. So, a lot depends on the approach that respective States adopt now. State’s role will be critical as the eventual burden of the levy may fall upon the end user.

(The author is a partner at Khaitan & Co.)

Views are personal and do not represent the stand of this publication.