In its latest ruling on the states’ power to legislate on taxing mining activities when royalty is already paid for extracting minerals, the Supreme Court has ruled in favour of states. This is a reversal of its decision in the ‘India Cements vs Tamil Nadu’ case, which has been law since 1989.
The latest ruling may be righting its own wrong over the interpretation of the powers of states to tax mining activities. But the implications of the order on its effective date – April 1, 2005 – is not just a blow to the industry in terms of financial implications but it also introduces the element of uncertainty in economic activities.
Indian companies may be faced with a bill of more than ₹1 lakh cr, and state-run ones by about ₹70k cr, according to industry estimates. The court may have reduced the blow by giving a breather of 12 years to collect the dues in a staggered manner and waiving interest and penalties. But this is also an admission of the adverse implications of making an order retrospective.
- Two aspects point to the necessity to apply the doctrine of prospective overruling:
- The court had taken 13 years to deliver its judgment on the appeal.
Its overruling its decision in a similar dispute where it said royalty is a tax. It has exercised such discretion in the past to avoid chaos and hardships.
It’s established practice for industry and legal practitioners to follow precedent set by the highest court, especially when it was delivered by a 7-judge bench. This is not the first time the court has found fault with its previous rulings, and it won’t be the last. But the revenue implications of its retrospective nature could have been avoided. Consistency is a virtue, especially when the stakes are high.
The latest ruling is also a fallout of the reading and misreading of a presumed ‘typographical error’ in the India Cements case, which the dissenting judge pointed out in this ‘Mineral Area Development Authority vs Steel Authority of India‘ case. The ruling was 8-1 in favour of states. Dissenting Justice B V Nagarathna elaborated on how overruling the India Cements judgment could be harmful in the first place, let alone retrospective application.
‘This would result in mineral development in the country in an uneven and haphazard manner and increase competition between the states and engage them into what has been termed by Louise Tillin in a ‘race to the bottom’ in a nationally sensitive market,’ she wrote. ‘There would be unhealthy competition between the states to derive additional revenue and consequently, the steep.’
The dissent note may be irrelevant from a broader legal implications point of view. But it addresses an important aspect of public policy essential for the economy.
The reversal of the previous order could also lead to double taxation. To compensate states for the loss of revenue from mining, GoI raised the royalty it levied on mining and distributed it to the states.
One of the complaints the judiciary faces is its inability to appreciate the time factor involved in decision-making. The matter has been winding through the system since 1999, and it was referred to a 9-judge bench in March 2011. ‘Taking into consideration the lapse of more than three decades since India Cements and more than a decade since the matter was referred to a larger bench, equities will be balanced if the state governments waive the outstanding interest accrued on the principal due from the assesses,’ CJI D Y Chandrachud wrote in Wednesday’s decision. ‘This direction applies to all assessees, regardless of whether they have approached this court or the high courts, challenging the validity of the relevant statutes.’
If the court was magnanimous enough to recognise its role in taking time to come up with the ruling and ameliorate the burden by waiving interest and penalties, it was just a question of extending the same reasoning to make the ruling prospective. The liability with retrospective effect could have been less if its pace of delivering justice had been faster.
