The Supreme Court of India has granted states the authority to recover outstanding royalty payments for minerals from both the Central Government and mining companies, retroactively applicable from April 1, 2005. This decision, announced on Wednesday, allows mineral-rich states to collect these dues in a phased manner over the next 12 years, starting from April 1, 2026. The ruling follows a July 25 verdict by a nine-judge Bench that affirmed the states’ right to impose taxes on mining activities.
This ruling marks a significant financial gain for states with abundant mineral resources, as they are now entitled to recover taxes and royalties that have accrued since 2005. However, the Supreme Court clarified that while the arrears can be collected, no penalties or interest will be applied to these past dues. This approach ensures that states can reclaim the funds without imposing additional financial burdens on mining companies.
Additionally, the Supreme Court reiterated that the royalty payments made by mining companies to the Centre are not classified as taxes but are instead considered contractual obligations. This decision overturns a previous 1989 ruling that had categorized such royalties as taxes. The Court emphasized that the Central Act of 1957, which regulates mining activities, does not limit the states’ power to levy taxes on mineral-rich lands. The verdict was delivered by a nine-judge Bench led by Chief Justice of India DY Chandrachud, with one dissenting opinion from Justice BV Nagarathna.
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