Today, On 31st July, The Odisha and Central governments are at odds regarding the Supreme Court’s recent judgment on the states’ authority to levy a mining cess. The core issue debated in the Court was whether this judgment should be applied retrospectively or prospectively.
New Delhi: A nine-judge Bench, On Wednesday, of the Supreme Court witnessed a notable divergence of opinion between the Odisha State government and the Central government, both led by the Bharatiya Janata Party (BJP), in a significant case.
The Bench, headed by Chief Justice of India (CJI) DY Chandrachud and including Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih, examining the issue of levying cesses on mining and mineral-use activities.
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Previously, the Court determined that the royalty paid by mining operators to the Central government does not constitute a tax, thereby affirming that States possess the authority to impose cesses on such activities.
Currently, the same bench is deliberating on whether this judgment should be applied retrospectively or prospectively.
The Central government, represented by Solicitor General (SG) Tushar Mehta, argued today that the judgment should apply only prospectively, meaning past transactions will remain unaffected. In contrast, Odisha Advocate General (AG) Pitambar Acharya contended that the judgment should be retrospective, opposing the Union government‘s position.
This disagreement led to significant consternation in the courtroom, with both the SG and the Bench questioning the AG. Initially, the AG provided some historical context:
The AG said,
“We have a very specific case. The Odisha Act is closely linked with social welfare measures and the Odisha population in mining bearing areas are scheduled tribes because we have nine districts as scheduled areas. The socio-economic development of the area was of paramount consideration due to which the 2004 enactment was passed. The rule was framed in 2005. I have a specific stand. This while implementing provisions of the rule we have to keep in mind certain developments which took place by way of 2015 amendments,”
The Chief Justice of India (CJI) inquired,
“Odisha act came into force from 1.2.2005 and it was struck down on 5.12.2005. What happened after that?”
The AG explained,
“After the legislation was struck down, following India Cements judgment, we could not proceed further. Now subsequent clauses have been enacted after the MMRDA Amendment Act was passed. While implementing the 2005 rule we have to keep some subsequent developments in mind like the introduction of ad valorem rate of royalty since August 13, 2009. Introduction of auction for allocation of mines by 2015 amendment and auction premium is additional payment. DMF is also paid for social welfare measures.”
The SG noted that Madhya Pradesh and Rajasthan support the Centre’s stance that the verdict should be prospective.
The CJI then asked the AG whether the State of Odisha wants the judgment to apply retrospectively.
The CJI asked the AG,
“What is the state of Odisha saying? That it should not be made applicable without it being made prospective,”
The AG affirmed,
“That is correct. The bottom-line is that we have to work out what is the total implication.”
The Bench sought clarification,
“So you are not supporting plea for prospective effect?”
The AG responded,
“If I say prospective then it will be a burden (on the State). The (Odisha State) exchequer would be losing substantially. The economy of the State is in shambles. Now we have several commitments for socio-economic development.”
Justice Oka inquired whether these instructions came from State authorities.
The AG admitted,
“I have not been informed. I have worked this out.”
The Bench advised,
“Do not pass on your dilemma to the court.”
The CJI emphasized that the Odisha government must clarify its stance, stating,
“We (Court) will decide but you have to take a stand.”
The AG acknowledged the implications, saying,
“The judgment will have cascading effects. SG has highlighted the effects.”
The CJI pressed further,
“So do you support that or not? You have to tell us.”
The AG indicated that the State could hold a contradictory position to the Centre, asserting,
“Situation in Odisha has changed now. There can be contradictory stands.”
The SG objected,
“This is not the way.”
The CJI reiterated,
“So you support him (SG) or not?”
The AG clarified his priority,
“I have to protect my exchequer because we have socio-economic commitments.”
The SG countered,
“Everyone is protecting everyone’s exchequer. Question is whether the windfall which will ultimately be shared by common man be acceptable or not.”
The AG replied,
“But the common man should not be made to suffer because of I will pass on a note.”
He also reminded the court that he had only recently assumed his position as AG.
Various States and the Centre have suggested that the judgment be applied strictly prospectively to avoid commercial losses for public sector companies. The Bench reserved its verdict in the matter.
The Solicitor General argued,
“States should neither demand levy retrospectively nor should any PSU or undertaking demand any refund of the money. This balances the equities.”
As the hearing concluded, Justice Roy noted,
“Very strong battles fought. One side says no refund, and no demand. This reminds me of a famous martial law theory: No retreat, no surrender.”
The case concerns whether State governments have the authority to tax and regulate activities related to mines and minerals following the enactment of the Mines and Minerals (Development & Regulation) Act (Mines Act).
In 1989, the Supreme Court ruled in India Cement Ltd v State of Tamil Nadu that royalty is a form of ‘tax’ under the Mines Act, and that States lack the legislative competence to impose cesses on such royalty.
In February 1995, a three-judge Bench of the Supreme Court in State of Madhya Pradesh v Mahalaxmi Fabric Mills Ltd upheld Section 9 of the Mines Act, reiterating the 1989 decision.
In January 2004, a five-judge Bench in State of West Bengal v Kesoram Industries Ltd by a 3:2 majority clarified that the 1989 Bench had made a typo, meaning to state that cess on royalty is a form of tax, not the royalty itself.
In March 2011, a three-judge bench identified a “prima facie” conflict between the decisions in the India Cements (1989) and Kesoram Industries (2004) cases, leading to the matter being referred to a nine-judge Bench.
On July 25, the Supreme Court, through an 8:1 majority, ruled that States retain the power to levy cess on mining or related activities. The case then scheduled for further hearing to determine whether the judgment should be applied prospectively or retrospectively.