The Supreme Court’s decision to allow states to seek royalty and tax dues from companies for mining activities from as far back as April 1, 2005, can easily be termed as a pyrrhic victory for the latter, just as it was for the Centre in the telecom adjusted gross revenue (AGR) case in October 2019. While the apex court’s verdict in July overturning its own 1991 judgment to give states the right to levy royalty and tax on mineral-bearing land needs to be lauded for upholding the principles of federalism, the application of the same with retrospective effect takes away a lot of the sheen. The reason is simple: Any collection of dues from a long past date strains the finances of the companies concerned, creates further litigation, distorts the structure, and encourages authorities to mindlessly chase the model of revenue maximisation, all of which take a toll on economy and private investments.
The effects of the SC verdict in the AGR case, which billed telecom companies with dues worth Rs 1.67 trillion for a 20-year period, is still being felt by the companies. Had the order not been tweaked two years later, followed by a government package, at least one company would have shut shop despite investing millions in the network. But it would be fair to say that in the AGR case the telcos were to be equally blamed because they had not provisioned for the amount despite knowing about the dispute and litigation. However, in the mining case, the companies cannot be blamed at all. In 1991, a seven-judge SC bench had ruled in an India Cement case that only the central government had the power to levy such royalty. Later in 2004, the apex court ruled in favour of the West Bengal government in its case against Kesoram Industries.
This means companies having mineral rights were totally in the right and were following the law of the land. If the SC has now overturned its own 1991 ruling and changed the law by agreeing with its 2004 order, why should the companies be penalised on a retrospective basis? It is correct that the apex court has acknowledged the financial impact and said that retrospective payment will come into effect from 2005, not 1991. It has also said that no penalty and interest should be charged and companies can pay in 12 instalments. However, with the industry estimating the dues to be around Rs 1.5 trillion, the impact would be too high, with liability in some cases higher than the net worth of a company. Since mineral mining is a deregulated sector, miners will not be able to recover past costs from their consumers. But in a sector like power, tariffs may go up as power purchase agreements have a cost recovery mechanism.
One hopes just like the Centre in the case of AGR, the state governments concerned behave responsibly and don’t turn extractive. The SC has said that it’s the prerogative of state legislatures to determine whether to forego past dues. The Madhya Pradesh government has already declared its intention of not seeking past dues. The future course of action of states like Jharkhand, Odisha, Chhattisgarh, Madhya Pradesh, Karnataka, Andhra Pradesh, and Rajasthan will now be watched closely. Still, the issue of regulatory certainty, which includes judicial clarity, remains a big concern in India as far as private investment is concerned. Companies need tax certainty, not frequent disruptions by the governments as well as the judiciary.