In a landmark decision, the Supreme Court of India ruled today that states can recover past tax dues on mineral rights and mineral-bearing lands, solidifying the authority of state governments to levy such taxes. However, the Court has also imposed a significant limitation: these recoveries cannot apply to any period before April 1, 2005.
This ruling comes in the wake of the Court’s earlier judgment on July 25, where an 8:1 majority upheld the states’ powers to tax mineral rights. The judgment clarified that the Union law—Mines and Minerals (Development and Regulation) Act, 1957—does not curtail this power. The nine-judge bench, led by Chief Justice of India (CJI) DY Chandrachud, affirmed the states’ rights, overturning the long-standing precedent set by the 1990 judgment in India Cements Ltd. v. State of Tamil Nadu.
The Supreme Court rejected the argument that its July 25 judgment should apply only prospectively from the date of the ruling. Instead, it allowed states to recover taxes for the period after April 1, 2005, effectively enabling retrospective recoveries for nearly two decades. However, the Court set a key condition: no tax demands can be made for any period before April 1, 2005.
Furthermore, the Court has provided some relief to taxpayers by stating that any arrears accrued under this ruling can be paid in a staggered manner over a 12-year period starting from April 1, 2026. Crucially, there will be no interest or penalty levied on tax demands pertaining to the period before July 25, 2024.
The July 25 judgment had stirred significant debate, with the Union government and several industries expressing concerns over its retrospective application. Solicitor General of India Tushar Mehta, representing the Union, argued that allowing states to recover taxes retroactively would disrupt established financial practices, particularly since the overruled India Cements judgment had been in force for over 35 years. He warned that such a move could have a cascading effect on mineral-dependent industries, ultimately burdening the common consumer.
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On the other hand, state representatives, notably Senior Advocate Rakesh Dwivedi for the State of Jharkhand, argued for the full retrospective application of the judgment. They contended that laws validly enacted by states, such as Jharkhand’s 1994 law, would be rendered ineffective if the judgment were only prospective. Dwivedi emphasized that this would undermine state legislation and result in a “travesty of justice.”
