In a major victory for mineral-rich States, the Supreme Court on Wednesday allowed them to seek dues from April 1, 2005 on royalty and tax on mineral rights and mineral-bearing land from the Centre in a staggered period of 12 years.

A nine-judge Constitution bench headed by Chief Justice DY Chandrachud said the argument for prospective effect of July 25 is rejected. Pronouncing the verdict on behalf of the bench, CJI Chandrachud said by a 8:1 majority, this Court had on July 25 answered the questions referred to it and held that legislative power to tax mineral rights vests with States.

He said after the pronouncement of the July 25 verdict, the assessees sought prospective effect of the decision and the matter was listed on July 31 to decide the effect of verdict.

The Centre has opposed the demand of states for refund of royalty levied on mines and minerals since 1989, saying it will impact the citizens and the PSUs will have to empty their coffers by Rs 70,000 crore according to initial estimates.

“The submission that the Mineral Area Development Authority Act (MADA July 25 verdict) be given prospective effect is rejected,” the bench said and laid down conditionalities for payment of dues by the Centre and mining companies, including Public Sector Undertakings, to the States, “While the states may levy or renew demands of tax, if any pertaining to Entries 49 and 50 of List II of seventh schedule of the Constitution, in terms of law laid down in the decision of MADA (July 25 verdict).

The demand of tax shall not operate on transactions made prior to April 1, 2005,” the bench said. Entry 49 of List II deals with taxes on lands and buildings while Entry 50 deals with taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development. The bench also comprising Justices Hrishikesh Roy, Abhay S Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, said “the time for payment of demand of tax (by States) shall be staggered in instalments over a period of 12 years commencing from April 1, 2026”.

The top Court directed that the levy of interest and penalty on demands of taxes by States from the Centre and mining companies made before the period of July 25, 2024 shall stand waived for all the assessee.

CJI Chandrachud said this verdict will be signed by eight-judges of the bench who by majority decided the July 25 judgement giving the State's power to levy taxes on mineral rights.

He said Justice Nagarathna will not sign Wednesday's verdict as she had given a dissenting view in the July 25 verdict.