1. Whether MADA judgment overruling India Cement on mineral royalty and cess should apply prospectively. (Para 1 , 13 )
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SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, CJI., HRISHIKESH ROY, ABHAY S. OKA, J.B. PARDIWALA, MANOJ MISRA, UJJAL BHUYAN, SATISH CHANDRA SHARMA, AUGUSTINE GEORGE MASIH, JJ.
Mineral Area Development Authority and Another – Appellants
Versus
M/s Steel Authority of India and Another – Respondents
Civil Appeal Nos. 4056-4064 of 1999, Civil Appeal No. 7937 of 2019, Writ Petition (Civil) No. 512 of 2018, Civil Appeal No. 7938 of 2019, Civil Appeal No. 7936 of 2019, Civil Appeal No. 6221 of 2008, Civil Appeal No. 5250 of 2019, Writ Petition (C) No. 729 of 2019, Writ Petition (C) No. 1029 of 2019, Special Leave Petition (C) No. 16028 of 2021, Civil Appeal No. 4286 of 2023, Civil Appeal No. 5682 of 2007, Civil Appeal No. 1295 of 2008, Civil Appeal No. 874 of 2013, Civil Appeal Nos. 8269-8271 of 2013, Civil Appeal No. 8268 of 2013. Civil Appeal No. 8267 of 2013, Civil Appeal No. 6135 of 2013, Civil Appeal No. 8272 of 2013, Civil Appeal No. 9458 of 2013, Special Leave Petition (Civil) No. 18600 of 2013, Civil Appeal No. 4332 of 2013, Civil Appeal No. 5329 of 2002, Civil Appeal No. 4993 of 2006, Civil Appeal No. 8273 of 2013, Civil Appeal No. 8274 of 2013, Civil Appeal No. 3869 of 2014, Civil Appeal No. 2632 of 2013, Civil Appeal No. 14685 of 2015, Civil Appeal No. 6784 of 2014, Writ Petition (Civil) No. 376 of 2015, Civil Appeal No. 10082 of 2016, Civil Appeal No. 886 of 2017, Civil Appeal No. 4588 of 2017, Civil Appeal No. 205 of 2017, Civil Appeal Nos. 5728-5729 of 2018, Civil Appeal Nos. 4722-4724 of 1999, Civil Appeal No. 5333 of 2002, Civil Appeal Nos. 5335-5336 of 2002, Civil Appeal No. 5332 of 2002, Civil Appeal No. 1352 of 2005, Civil Appeal No. 1883 of 2006, T.P. (Civil) No. 722 of 2006, Civil Appeal No. 4745 of 2006, Civil Appeal No. 4990 of 2006, Civil Appeal No. 5599 of 2006, Civil Appeal No. 5649 of 2006, Civil Appeal No. 378 of 2007, Civil Appeal No. 665 of 2007, Civil Appeal No. 1180 of 2007, T.P. (Civil) No. 481 of 2007, T.P. (Civil) No. 906 of 2007, Civil Appeal No. 3401 of 2008, Civil Appeal No. 3400 of 2008, Civil Appeal No. 3402 of 2008, Civil Appeal No. 8311 of 2011, Civil Appeal No. 4293 of 2012, Civil Appeal No. 2055 of 2009, T.P. (Civil) No. 951 of 2006, Civil Appeal No. 4991 of 2006, Civil Appeal No. 4992 of 2006, Special Leave Petition (Civil) No. 763 of 2007, Special Leave Petition (Civil) No. 15900 of 2007, Civil Appeal No. 3403 of 2008, Civil Appeal No. 98 of 2009, T.P. (Civil) No. 613 of 2009, T.P. (Civil) No. 626 of 2009, Civil Appeal No. 4479 of 2010, Civil Appeal No. 4478 of 2010, Civil Appeal No. 3643 of 2011, Civil Appeal Nos. 4710-4721 of 1999, Civil Appeal No. 2174 of 2009, Civil Appeal No. 6497 of 2008, Civil Appeal No. 6498 of 2008, Civil Appeal No. 6137 of 2008, Civil Appeal No. 7397 of 2008, Civil Appeal No. 96 of 2009, Civil Appeal No. 6499 of 2008, Civil Appeal No. 97 of 2009, Special Leave Petition (Civil) No. 26160 of 2008
Decided On : 14-08-2024
(A) Statute Law – Doctrine of Prospective Overruling – Doctrine of prospective overruling is applied when a constitutional court overrules a well-established precedent by declaring a new rule but limits its application to future situations – Underlying objective is to avert injustice or hardships – Doctrine does not validate an invalid law, but declaration of invalidation takes effect from a future date – It is applied to avoid social and economic disruptions and give sufficient time to affected entities and institutions to make appropriate changes and adjustments. (Paras 5 and 11)
(B) Constitution of India – Article 142 – Power to do complete justice – Power of Supreme Court to mould relief claimed to meet justice of the case is derived from Article 142 – It is applied by Supreme Court while overruling its earlier decision, which was otherwise final – It has also been applied when deciding on an issue for the first time – Supreme Court has often used its powers under Article 142 to limit retroactivity of its decisions. (Paras 11 and 12)
(C) Constitution of India – Entries 49 and 50 of List II of Seventh Schedule – Levy of tax – While States may levy or renew demands of tax, if any, pertaining to Entries 49 and 50 of List II of Seventh Schedule in terms of law laid down in decision in MADA (2024 INSC 554) demand of tax shall not operate on transactions made prior to 1st April 2005 – Time for payment of demand of tax shall be staggered in instalments over a period of twelve years commencing from 1st April 2026 – Levy of interest and penalty on demands made for the period before 25 July 2024 shall stand waived for all assesses – Beneficiary of an interim order of stay has to pay interest on amount withheld or not paid under interim order in the event outcome goes against beneficiary – Equities will be balanced if State governments waive outstanding interest accrued on principal due from assesses – This direction applies to all assesses, regardless of whether they have approached this Court or High Courts challenging validity of relevant statutes. (Paras 21, 22 and 25)
Facts of the case:
In Mineral Area Development Authority v. Steel Authority of India, Civil Appeal Nos. 4056-4064 of 1999; 2024 INSC 554 (“MADA”) nine-Judge Bench of this Court answered the questions referred in terms of conclusions arrived at by the majority. In the process, judgment overruled India Cement Ltd. v. State of Tamil Nadu, (1990) 1 SCC 12 and subsequent decisions of this Court which relied on it. After pronouncement of judgment, Counsel for assesses submitted that the judgment may be given prospective effect. Therefore, proceedings were listed for hearing submissions on whether or not judgment should be given prospective effect.
Findings of Court:
A few States do not wish to collect dues accrued before decision in MADA. It is prerogative of State legislatures to determine whether to forego dues for the period before 25 July 2024.
Result : Reference answered.
1. Whether MADA judgment overruling India Cement on mineral royalty and cess should apply prospectively. (Para 1 , 13 )
2. Assesses argued for prospective effect to protect settled commercial relations; States argued against it to safeguard financial interests and legislative validity. (Para 2 , 3 , 4 , 17 , 20 )
3. Prospective effect of MADA judgment is rejected; conditional directions issued including States' option to waive interest on accrued dues. (Para 22 , 23 , 24 , 25 )
The doctrine is applied when a constitutional court overrules a well-established precedent by declaring a new rule but limits its application to future situations to avert injustice or hardships. Three factors are considered under Chevron Oil: whether a new principle of law is established, weighing merits and demerits of retrospective application, and whether non-retroactivity avoids substantial inequitable results. (Para 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 14 )
No. The submission for prospective effect is rejected because MADA upheld the legislative competence of States under Entries 49 and 50 of List II. Applying it prospectively would invalidate previously valid legislation and require States to refund taxes collected, which would be constitutionally unjust. (Para 15 , 16 , 17 , 19 , 24 )
The court directed that equities will be balanced if State governments waive the outstanding interest accrued on the principal due from assesses. It is the prerogative of State legislatures to determine whether to forego dues for the period before 25 July 2024. (Para 22 , 23 , 25 )
In Bharat Aluminium, prospective overruling was applied to arbitration agreements concluded after judgment. However, in the present case, Article 265 of the Constitution prescribes that no tax shall be levied except by authority of valid law, and the power to levy tax is an incidence of sovereignty, making retrospective application constitutionally just. (Para 18 , 19 )
MADA overruled India Cement, which held royalty is a tax barring States from imposing cess under Entries 23 and 50 of List II. It upheld Kesoram's view that royalty is not a tax, laying down principles for interpreting Entry 54 of List I and Entries 23 and 50 of List II. (Para 13 , 14 )
ORDER :
DHANANJAYA Y. CHANDRACHUD, CJI.
| Table of Contents | |
| A. | Background |
| B. | Submissions |
| C. | Prospective overruling |
| D. | A pragmatic solution to reconcile the conflicting interests |
| E. | Conclusion |
A. Background
1. In Mineral Area Development Authority v. Steel Authority of India, Civil Appeal Nos. 4056-4064 of 1999; 2024 INSC 554 (“MADA”) the nine-Judge Bench of this Court answered the questions referred in terms of the conclusions arrived at by the majority. In the process, the judgment overruled India Cement Ltd. v. State of Tamil Nadu, (1990) 1 SCC 12 and subsequent decisions of this Court which relied on it. After the pronouncement of the judgment, counsel for the assesses submitted that the judgment may be given prospective effect. Therefore, the proceedings were listed for hearing submissions on whether or not the judgment should be given prospective effect.
B. Submissions
2. Mr. R. Venkataramani, Attorney-General for India, Mr. Tushar Mehta, Solicitor- General of India, Mr. Harish Salve, Mr. Abhishek Manu Singhvi, Mr. Mukul Rohatgi, and Mr. Arvind Datar, senior counsel, made the following submissions:
a. India Cement (supra) held the field for thirty-five years before it was overruled in MADA (supra). Demands for tax under state legislation pertaining to Entries 49 and 50 of List II of the Seventh Schedule have been stayed in terms of the law laid down in India Cement (supra). The affected parties (which include public sector undertakings) have factored in the state levies which were valid and applicable at the relevant point of time and passed them on to the end consumers. If State legislatures are allowed to renew the tax demands, end consumers will ultimately bear the burden.
b. After the decision in India Cement (supra), the levies collected by the States were protected because of validation legislation enacted by Parliament. If a ruling creates or renews a liability for the assesses, there is no protection against retrospective demands.
c. Since 2015, entities bidding for mineral concessions have submitted their financial bids on the basis of the legal position in India Cement (supra). If MADA (supra) is given retrospective effect, it will rewrite commercial bargains underpinning the mineral auctions. This Court ordinarily does not disturb past or concluded transactions in tax matters.
d. The doctrine of prospective overruling is well-established in Indian constitutional jurisprudence. MADA (supra) should be given prospective effect because it lays down new constitutional principles.
e. Where enforcement of taxing legislation was either partially or completely interdicted by judicial orders, it should be directed that no new tax demand be made for the period before the judgment in MADA (supra), that is, before 25 July 2024.
3. On the other hand, Mr. Rakesh Dwivedi, Mr. Vijay Hansaria, and Mr. Tapesh Kumar Singh, senior counsel, appearing for the States made the following submissions:
a. The doctrine of prospective overruling is applicable only when the judgment invalidates a legislation or introduces a new interpretation by overruling its earlier decision. The doctrine of prospective overruling has never been applied to situations where the declaration of law attaches validity to taxing legislation.
b. If MADA (supra) is applied prospectively, India Cement (supra) will have to operate till 25 July 2024. Resultantly, all relevant state legislation will be tested on the anvil of India Cement (supra) and may be declared ultra vires. This consequence is unjust and against the public interest.
c. In State of West Bengal v. Kesoram Industries Ltd., (2004) 10 SCC 201 a Constitution Bench upheld the validity of legislation enacted by the State of West Bengal. After Kesoram (supra), several states such as Chhattisgarh, Madhya Pradesh, and Rajasthan enacted legislation which was upheld by the respective High Courts. Giving prospective effect to MADA (supra) will result in a discriminatory situation. While We
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