Summary
In a follow-up order to the nine-Judge Bench decision in Mineral Area Development Authority v. Steel Authority of India (25 July 2024), which overruled India Cement, the Court refused to make that ruling prospective. Applying it only from that date would have exposed State taxing laws on mineral rights and mineral-bearing land to invalidation under overruled law. To balance equities, States may not tax transactions before 1 April 2005, payment is to be staggered over twelve years, and interest and penalty for the period before 25 July 2024 are waived.
Issues
- Whether the decision in MADA, which upheld the States' competence to tax mineral rights and mineral-bearing land under Entries 49 and 50 of List II and overruled India Cement, should operate only prospectively.
- If not, what directions were needed to balance the financial interests of the States and the assessees in respect of past demands.
Provisions considered
- Article 142, Constitution of IndiaTreated as the source of the Court's power to apply prospective overruling and to mould relief; the Court used it not to make MADA prospective but to limit the operation of revived tax demands in time, payment schedule and interest. (¶¶ 9, 11, 12, 25)
- Article 265, Constitution of IndiaNo tax may be levied or collected except by authority of a valid law. Prospective application of MADA would test State levies against overruled law and might invalidate them, which the Court held would not be a constitutionally just outcome; this distinguished Bharat Aluminium, where prospective effect protected commercial arrangements. (¶¶ 18, 19)
- Seventh Schedule, List II, Entries 49 and 50, Constitution of IndiaMADA upheld State legislative competence under these entries; the conditions directed govern State tax demands under them for past periods. (¶¶ 13, 17, 19, 20, 25)
Held
- Prospective overruling, traced in Golak Nath to the Court's power under Article 142, is a discretionary device to avoid reopening settled matters, refunds of amounts collected under invalid laws, multiplicity of proceedings and social and economic disruption; the Court summarised the principles governing its use. (¶¶ 5, 7, 8, 9, 11, 12)
- The doctrine is applied mainly where a new declaration invalidates legislation that was valid under the old law, so as to protect State revenue and rights crystallised under the old regime; the Court generally does not apply it when upholding legislative competence, as in Municipal Council, Kota and Jindal Stainless. (¶¶ 14, 15, 16)
- Since MADA upheld State competence under Entries 49 and 50 of List II, the earlier law was unsettled by the conflict between India Cement and Kesoram, and statutes carry a presumption of constitutionality, applying MADA prospectively would be iniquitous: State taxing laws enacted before 25 July 2024 might be struck down on overruled law and refunds compelled. The plea for prospective effect was rejected. (¶¶ 17, 19, 24)
- Bharat Aluminium, where prospective effect protected arbitration agreements, was distinguished: under Article 265 the question is whether a taxing law is valid, and the power to tax is an incident of sovereignty. (¶¶ 18, 19)
- To reconcile the interests of the States and the assessees, the Court treated Kesoram as an operative fact on which States legislated, noted that interim orders had made payment depend on the outcome, and found that the long delay in the proceedings should not burden assessees; it therefore barred demands for the earlier period and waived interest and penalty for all assessees, whether or not they had litigated. (¶¶ 20, 21, 22, 25)
- Whether to forgo dues for the period before 25 July 2024 is the prerogative of the State legislatures. (¶ 23)
Result
Prayer for prospective application of MADA rejected; States may levy or renew tax demands under Entries 49 and 50 of List II in terms of MADA but not for transactions before 1 April 2005; payment to be staggered in instalments over twelve years from 1 April 2026; interest and penalty on demands for the period before 25 July 2024 waived for all assessees.