SC decides on timelines for operationality of tax on mineral rights and waiver of interest and penalty

 This Tax Alert summarizes a recent ruling of the Supreme Court (SC) to decide whether the majority ruling of nine-judge bench of SC in case of Mineral Area Development Authority vs. Steel Authority of India (MADA) should be given prospective effect.

SC in the above case had earlier upheld the power of States to impose taxes on mineral rights. Subsequently, the question arose whether the judgement should apply prospectively or retrospectively.

SC observed that if MADA is given a prospective effect, the validity of all relevant legislation enacted before the date of the decision will have to be tested on the touchstone of the previous law which was unsettled because of the conflicting decisions. Since MADA has resolved the conflict, it should be applied retrospectively.

Further, bearing in mind the consequences that would emanate from the past period, SC directed following conditionalities to prevail:

• The demand of tax on mineral rights by States shall not operate on transactions made prior to 1 April 2005;

• The time for payment of the demand shall be staggered in instalments over a period of twelve years commencing from 1 April 2026; and

• The levy of interest and penalty on demands made for the period before 25 July 2024 shall stand waived for all the assessees.

Comments

• While the Supreme Court upheld the power of States to levy tax on mineral rights, restricting the power to recover the same only from 1 April 2005 along with waiver of interest and penalty may lower the burden on the concerned industries.
• Allowing staggered payment over a period of 12 years is likely to ease the working capital issue for such businesses.
• Taxpayers may have to evaluate whether the SC judgement upholding the State’s power to levy tax on mineral rights has any bearing on the royalty charged under Section 6A of Oilfields (Regulation and Development) Act, 1948.