Royalty ruling: It’s ironic how a judgement can prove so taxing for an economy

livemint.com:

Subscribe to enjoy similar stories. Truth is stranger than fiction. The Supreme Court of India seems to have left no stone unturned to make this saying ring true.

Even in their wildest imagination, nobody would have thought that when a seven-judge bench of the top court held in India cement vs State of Tamil Nadu that mining royalty is a tax, it had actually meant the exact opposite, that royalty is not a tax. This happened in 1990. What the highest court holds must prevail, so this bad verdict remained the law for several years.

This “inadvertent error," as the Supreme Court (SC) later termed it, was called out only in 2004, in State of West Bengal vs Kesoram Industries Ltd. Unfortunately, this case was judged by a five-judge bench that could not overrule the India Cement judgement. The latter held firm, despite the court’s 2004 observation, even though a curative order could have been issued to rectify the flaw. In 2011, the SC finally took note of the discrepancy between India Cement and Kesoram, and referred the issue to a nine-judge bench to provide a decisive ruling.

In 2024, 20 years after Kesoram (and 13 years after the reference), India Cement was overruled by a nine-judge bench decision of the SC in Mineral Area Development Authority (MADA) vs Steel Authority of India, which held that royalty is not a tax. Interestingly, the minority opinion in the MADA judgement pointed out that actually there was no clerical error in the India Cement ruling. The judges meant to hold that royalty is a tax, and they were right.