Mineral Area Development Authority Etc vs M/S Steel Authority Of India

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE/ORIGINAL JURISDICTION

Civil Appeal Nos. 4056-4064 of 1999

Mineral Area Development Authority & Anr. …Appellants

Versus

M/S Steel Authority of India & Anr Etc. …Respondents

With

Civil Appeal No. 7937 of 2019 With Writ Petition (Civil) No. 512 of 2018 With Civil Appeal No. 7938 of 2019 With Civil Appeal No. 7936 of 2019 With Civil Appeal No. 6221 of 2008 With Civil Appeal No. 5250 of 2019 With Writ Petition (C) No. 729 of 2019 With Writ Petition (C) No. 1029 of 2019 With Special Leave Petition (C) No. 16028 of 2021 With Civil Appeal No. 4286 of 2023 With Civil Appeal No. 5682 of 2007 Signature Not Verified With Civil Appeal No. 1295 of 2008 Digitally signed by Sanjay Kumar Date: 2024.08.14 12:00:36 IST Reason: With Civil Appeal No. 874 of 2013 With

Page 1 of 22 Civil Appeal Nos. 8269-8271 of 2013 With Civil Appeal No. 8268 of 2013 With Civil Appeal No. 8267 of 2013 With Civil Appeal No. 6135 of 2013 With Civil Appeal No. 8272 of 2013 With Civil Appeal No. 9458 of 2013 With Special Leave Petition (Civil) No. 18600 of 2013 With Civil Appeal No. 4332 of 2013 With Civil Appeal No. 5329 of 2002 With Civil Appeal No. 4993 of 2006 With Civil Appeal No. 8273 of 2013 With Civil Appeal No. 8274 of 2013 With Civil Appeal No. 3869 of 2014 With Civil Appeal No. 2632 of 2013 With Civil Appeal No. 14685 of 2015 With Civil Appeal No. 6784 of 2014 With Writ Petition (Civil) No. 376 of 2015 With Civil Appeal No. 10082 of 2016 With Civil Appeal No. 886 of 2017 With Civil Appeal No. 4588 of 2017 With Civil Appeal No. 205 of 2017 With Civil Appeal Nos. 5728-5729 of 2018 With Civil Appeal Nos. 4722-4724 of 1999 With Civil Appeal No. 5333 of 2002 With Civil Appeal Nos. 5335-5336 of 2002 With

Page 2 of 22 Civil Appeal No. 5332 of 2002 With Civil Appeal No. 1352 of 2005 With Civil Appeal No. 1883 of 2006 With T.P. (Civil) No. 722 of 2006 With Civil Appeal No. 4745 of 2006 With Civil Appeal No. 4990 of 2006 With Civil Appeal No. 5599 of 2006 With Civil Appeal No. 5649 of 2006 With Civil Appeal No. 378 of 2007 With Civil Appeal No. 665 of 2007 With Civil Appeal No. 1180 of 2007 With T.P. (Civil) No. 481 of 2007 With T.P. (Civil) No. 906 of 2007 With Civil Appeal No. 3401 of 2008 With Civil Appeal No. 3400 of 2008 With Civil Appeal No. 3402 of 2008 With Civil Appeal No. 8311 of 2011 With Civil Appeal No. 4293 of 2012 With Civil Appeal No. 2055 of 2009 With T.P. (Civil) No. 951 of 2006 With Civil Appeal No. 4991 of 2006 With Civil Appeal No. 4992 of 2006 With Special Leave Petition (Civil) No. 763 of 2007 With Special Leave Petition (Civil) No. 15900 of 2007 With Civil Appeal No. 3403 of 2008 With

Page 3 of 22 Civil Appeal No. 98 of 2009 With T.P. (Civil) No. 613 of 2009 With T.P. (Civil) No. 626 of 2009 With Civil Appeal No. 4479 of 2010 With Civil Appeal No. 4478 of 2010 With Civil Appeal No. 3643 of 2011 With Civil Appeal Nos. 4710-4721 of 1999 With Civil Appeal No. 2174 of 2009 With Civil Appeal No. 6497 of 2008 With Civil Appeal No. 6498 of 2008 With Civil Appeal No. 6137 of 2008 With Civil Appeal No. 7397 of 2008 With Civil Appeal No. 96 of 2009 With Civil Appeal No. 6499 of 2008 With Civil Appeal No. 97 of 2009 And With Special Leave Petition (Civil) No. 26160 of 2008

Page 4 of 22 ORDER

Dr Dhananjaya Y Chandrachud, CJI

Table of Contents

A. Background ..........................................................................................................6

B. Submissions ........................................................................................................6

C. Prospective overruling ........................................................................................9

D. A pragmatic solution to reconcile the conflicting interests........................... 15

E. Conclusion .........................................................................................................21

Page 5 of 22 PART A&B

A. Background

1. In Mineral Area Development Authority v. Steel Authority of India,1 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 2 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

1 Civil Appeal Nos. 4056-4064 of 1999; 2024 INSC 554 (“MADA”). 2 (1990) 1 SCC 12

Page 6 of 22 PART B

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; and

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:

Page 7 of 22

PART B

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; and

c. In State of West Bengal v. Kesoram Industries Ltd, 3 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 West Bengal will continue to collect tax (which

it has been doing since 1992), other states with similar enactments may be

deprived of collecting tax from the date of their enactments.

4. We have also heard Mr Pitambar Acharya, Advocate General of the State of

Orissa, who emphasized the importance of protecting the financial interests

of States.

3 (2004) 10 SCC 201

Page 8 of 22 PART C

C. Prospective overruling

5. The 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. The underlying objective is to avert injustice

or hardships. 4 The doctrine was applied by the courts in the US on the basis

that the US Constitution “neither prohibits nor requires retroactive effect.” 5

The US Supreme Court has considered the existence of a statute or judicial

decision as an “operative fact” having “consequences which cannot justly be

ignored” or “erased by a new judicial declaration.” 6 Therefore, it was held that

the effect of a subsequent ruling as to invalidity may have to be considered in

light of various aspects. 7

6. In Chevron Oil Company v. Huson,8 the US Supreme Court identified three

separate factors to be considered while deciding the applicability of

prospective overruling: (i) the decision to be applied prospectively must

establish a new principle of law, either by overruling clear past precedent on

which litigants may have relied, or by deciding an issue of first impression

whose resolution was not foreshadowed; (ii) the court must weigh the merits

and demerits in each case by looking to the prior history of the rule in question,

its purpose and effect, and whether retrospective operation will further or

4 Great Northern Railway Co. v. Sunburst Oil and Refining Co., 287 U S 358 (1932) 5 Linkletter v. Walker, 381 US 618 (1965) 6 Chicot County Drainage Dist. v. Baxter State Bank, 308 US 371 (1940) 7 Chicot County Drainage Dist (supra) 8 404 US 97 (1971)

Page 9 of 22 PART C

retard the operation of the rule; and (iii) whether the application of

nonretroactivity avoids substantial inequitable results, injustice or hardships.

7. This Court has adopted the doctrine of prospective overruling, partly inspired

by the jurisprudence developed in the US. In Golak Nath v. State of Punjab,

a Bench of eleven Judges of this Court was called upon to decide the validity

of the Constitution (Seventeenth Amendment) Act 1964 which included

certain state agrarian laws in the Ninth Schedule of the Constitution. The

majority held that an amendment to the Constitution was “law” according to

the definition under Article 13. Further, it was held that constitutional

amendments are also subject to limitations prescribed under Article 13(2).9

Resultantly, the constitutional amendment was declared void for infringing

Article 13(2). The next issue before the Court was whether the decision

should be applied prospectively.

8. Golak Nath (supra) overruled earlier decisions 10 of this Court which had held

that Parliament can amend or abridge the fundamental rights in Part III of the

Constitution. The States had relied on the earlier rulings to enact agrarian

legislation. During 1950 and 1967, various amendments were carried out to

the Constitution validating the agrarian reforms undertaken after

Independence. In this context, Chief Justice K Subba Rao observed that

giving retrospective operation to the decision “would introduce chaos and

9 Constitution of India, Article 13 10 Shankari Prasad Singh Deo v. Union of India, 1951 SCC 966; Sajjan Singh v. State of Rajasthan,

1964 SCC OnLine SC 25.

Page 10 of 22 PART C

unsettle the conditions in our country.” Resultantly, it was observed that

overruling the earlier decisions but restricting the ruling to the future and not

to the past was a “reasonable principle” to resolve extraordinary situations:

“49. […] It is really a pragmatic solution reconciling the two conflicting doctrines, namely, that a court finds law and that it does make law. It finds law but restricts its operation to the future. It enables the court to bring about a smooth transition by correcting its errors without disturbing the impact of those errors on the past transactions. It is left to the discretion of the court to prescribe the limits of the retroactivity and thereby it enables it to mould the relief to meet the ends of justice.”

(emphasis added)

9. The Chief Justice held that the power of this Court to apply the doctrine of

prospective overruling could be traced to Article 142 and formulated the

following propositions about the applicability of the doctrine:

a. It can be invoked only in matters arising under the Constitution;

b. It can be applied only by this Court as it has the constitutional jurisdiction to

declare law binding on all the courts in India; and

c. The scope of the retroactive operation of the law is left to the discretion of

this Court to be moulded in accordance with the justice of the cause or

matter before it.

Page 11 of 22 PART C

10. After laying down the broad canvas, the learned Chief Justice concluded:

“53. […] What then is the effect of our conclusion on the instant case? Having regard to the history of the amendments, their impact on the social and economic affairs of our country and the chaotic situation that may be brought about by the sudden withdrawal at this stage of the amendments from the Constitution, we think that considerable judicial restraint is called for. We, therefore, declare that our decision will not affect the validity of the Constitution (Seventeenth Amendment) Act, 1964, or other amendments made to the Constitution taking away or abridging the fundamental rights. We further declare that in future the Parliament will have no power to amend Part III of the Constitution so as to take away or abridge the fundamental rights.”

(emphasis added)

11. Although Golak Nath (supra) was subsequently overruled in Kesavananda

Bharati v. State of Kerala, 11 the doctrine of prospective overruling has been

accepted by this Court. This Court has applied the doctrine in varied contexts.

The following principles emerge on the application of the doctrine:

a. The power of this Court to mould the relief claimed to meet the justice of

the case is derived from Article 142; 12

b. It is applied by this Court while overruling its earlier decision, which was

otherwise final. It has also been applied when deciding on an issue for

the first time; 13

11 (1973) 4 SCC 225 12 Belsund Sugar Co. Ltd. v. State of Bihar, (1999) 9 SCC 620 [112] 13 Somaiya Organics (India) Ltd. v. State of U P, (2001) 5 SCC 519 [24]

Page 12 of 22 PART C

c. The object is to validate all the actions taken before the date of

declaration in the larger public interest. 14 The doctrine does not validate

an invalid law, but the declaration of invalidation takes effect from a

future date;15

d. Cases that have attained finality are saved because doing otherwise

would cause unnecessary and avoidable hardships;16

e. It is applied to bring about a smooth transition of the operation of law

without unduly affecting the rights of the people who acted upon the

overruled law; 17

f. It is a device innovated to avoid: (i) reopening settled issues, (ii) refund

of amounts collected under invalid legislation, and (iii) multiplicity of

proceedings; 18 and

g. It is applied to avoid social and economic disruptions and give sufficient

time to the affected entities and institutions to make appropriate changes

and adjustments. 19

12. This Court has often used its powers under Article 142 to limit the retroactivity

of its decisions. In Union of India v. Mohd. Ramzan Khan, 20 a three-Judge

Bench of this Court held that non-furnishing of an enquiry report to a

delinquent employee would amount to a violation of the rules of natural

14 Baburam v. C C Jacob, (1999) 3 SCC 362 [5] 15 Somaiya Organics (supra) [37] 16 Raymond Ltd. v. MP Electricity Board, (2001) 1 SCC 534 [24]; Sarwan Kumar v. Madan Lal Aggarwal,

(2003) 4 SCC 147 [15]; Ramesh Kumar Soni v. State of M P, (2013) 14 SCC 696 [21]. 17 L Chandra Kumar v. Union of India, (1997) 3 SCC 261 [94]; Ashok Kumar Gupta v. State of U P,

(1997) 5 SCC 201 [54] 18 M A Murthy v. State of Karnataka, (2003) 7 SCC 517 [8]; Shree Mahavir Oil Mills v. State of Jammu

and Kashmir, (1996) 11 SCC 39 [27] 19 New Noble Educational Society v. CIT, (2023) 6 SCC 649 [84] 20 (1991) 1 SCC 588

Page 13 of 22 PART C

justice. The Court declared the law to be prospective, but gave relief to the

employees before the Court. The correctness of Ramzan Khan (supra) came

up before a Constitution Bench in Managing Director, ECIL v. B

Karunakar. 21 The Constitution Bench upheld Ramzan Khan (supra). It was

further held that the law laid down in Ramzan Khan (supra) cannot be applied

retrospectively because:

a. the legal position on furnishing the report of an enquiry officer to the

delinquent employee was unsettled before Ramzan Khan (supra);

b. the authorities had proceeded on the assumption that there was no

requirement to furnish a copy of the enquiry report to the delinquent

officer; and

c. reopening of all disciplinary proceedings before Ramzan Khan (supra)

would result in grave prejudice to the administration which outweighed

the benefit to the employees.

Hence, it was held that no proceedings before the decision in Ramzan Khan

(supra) should be challenged on the ground that there was a failure to furnish

the enquiry report.

21 (1993) 4 SCC 727

Page 14 of 22 PART D

D. A pragmatic solution to reconcile the conflicting interests

13. In India Cement (supra), a Bench of seven Judges of this Court held that

royalty is tax. Resultantly, it was held that the State legislatures have no

legislative competence to impose cess on royalty under Entries 23 and 50 of

List II. Fifteen years later, a Constitution Bench in Kesoram (supra) held that

royalty is not a tax. It was further held that the power to levy tax on mineral

rights vests with the State legislatures and is subject to any limitations laid

down by Parliament by law relating to mineral development. Given this

divergence, a reference was made to a larger Bench. MADA (supra) has laid

down the principles for interpreting Entry 54 of List I and Entries 23 and 50 of

List II. In the process, this Court overruled India Cement (supra).

14. The doctrine of prospective overruling has been applied by this Court in

situations where the new declaration results in the invalidation of legislation,

which would otherwise have been valid under the old declaration. 22 The

doctrine has also been used where this Court has declared a legislation as

ultra vires. 23 In the case of taxing statutes, such a declaration would make the

State liable to refund all amounts collected under the invalid legislation.

Therefore, this Court declares the new rule to apply prospectively not only to

secure the revenues of the State but also to protect the rights and obligations

crystallized by persons and entities under the old regime.24

22 Golak Nath (supra) [53]; Synthetics & Chemicals Ltd v. State of U P, (1990) 1 SCC 109 [89] 23 Gaurav Kumar v. Union of India, 2024 SCC OnLine SC 1841 [108] 24 India Cement Ltd v. State of T N, (1990) 1 SCC 12 [35]; Orissa Cement Ltd v. State of Orissa, 1991

Supp (1) SCC 430 [69]

Page 15 of 22 PART D

15. This Court generally does not declare prospective overruling when upholding

the legislative competence of legislatures. In Municipal Council, Kota v.

Delhi Cloth & General Mills Co. Ltd.,25 this Court was called upon to decide

the validity of the dharmada tax levied and collected by the Municipal Council.

The High Court held that the Municipal Council was not authorized to collect

the tax. Further, the High Court directed the State government to refund the

collections made to the assesses. In the appeal, a two-Judge Bench of this

Court upheld the competence of the Municipal Council to levy the tax. It also

set aside the order of the High Court granting refunds to the assesses.

16. In Jindal Stainless Ltd. v. State of Haryana, 26 a Bench of nine Judges of

this Court held that a non-discriminatory tax does not per se constitute a

restriction on the right to free trade, commerce and intercourse guaranteed

under Article 301. This Court overruled long-standing precedents that held

that taxes, except for compensatory taxes, offend Article 301. 27 In that case,

the counsel specifically submitted that the judgment should be given a

prospective effect. 28 However, the decision was given a retrospective effect.

In her concurring opinion, Justice Banumathi dealt with the issue raised by

the assesses about payment/refund of tax in case the validity of the legislation

was upheld or otherwise. The learned Judge rejected the claim of the

assesses for refund of taxes thus:

“481. It is well settled that a claim of refund can be allowed only when the claimant establishes that he

25 (2001) 3 SCC 654 26 (2017) 12 SCC 1 27 Atiabari Tea Co. Ltd. v. State of Assam, AIR 1961 SC 232; Automobile Transport (Rajasthan) Ltd. v.

State of Rajasthan, AIR 1962 SC 1406 28 Jindal Stainless Ltd. (supra) [897]

Page 16 of 22 PART D

has not passed on the tax burden to the consumers.

No refund can be granted so as to cause windfall gain to any person when he has not suffered the burden of tax. The possibility of the tax burden having been passed on to the consumers by the assessees cannot be ruled out in the present case. Applying the law laid down above to the present case, it emerges that the assessees cannot claim refund irrespective of whether the impugned legislations are declared valid or unconstitutional. Unless the assessees establish that they have not passed on the tax burden to the consumers, they cannot make a claim for refund and unjustly enrich themselves.”

(emphasis added)

17. MADA (supra) has upheld the legislative competence of States under Entries

49 and 50 of List II. If MADA (supra) is given a prospective application, the

validity of all relevant legislation enacted before the date of the decision, that

is 25 July 2024, will have to be tested on the touchstone of the previous law.

The previous law on the aspects of interpretation of Entry 54 of List I and

Entries 23 and 50 of List II of the Seventh Schedule was unsettled because

of the conflicting decisions in India Cement (supra) and Kesoram (supra).

There is always a presumption of constitutionality in favor of a statutory

enactment. It is based on the theory that the elected representatives are

aware of the needs of the citizens and are best placed to frame policies to

resolve them. 29 Legislation represents the will of the people and cannot be

lightly interfered with unless it transgresses constitutional principles. 30 If

29 Association for Democratic Reforms v. Union of India, (2024) 5 SCC 1 [45] 30 Charanjit Lal Chowdhury v. Union of India, (1950) SCR 869; State of Bihar v. Bihar Distillery Ltd.,

(1997) 2 SCC 453 [17]

Page 17 of 22 PART D

MADA (supra) is applied prospectively, the relevant taxing legislations may

conceivably be invalidated, requiring the States to refund the amount

collected to the assesses. Since MADA (supra) has answered the reference

and resolved the conflict, it would be iniquitous to apply the decision

prospectively.

18. The learned Solicitor General relied on the Constitution Bench decision in

Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.31 to

draw upon the point that this Court has applied the doctrine of prospective

overruling where the parties have entered into commercial relations based on

the prevailing legal position. In Bharat Aluminium (supra), this Court held:

“197. The judgment in Bhatia International [(2002) 4 SCC 105] was rendered by this Court on 13-3-2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by this Court on numerous occasions. In fact, the judgment in Venture Global Engg. [(2008) 4 SCC 190] has been rendered on 10-1-2008 in terms of the ratio of the decision in Bhatia International [(2002) 4 SCC 105]. Thus, in order to do complete justice, we hereby order, that the law now declared by this Court shall apply prospectively, to all the arbitration agreements executed hereafter.”

19. The decision in Bharat Aluminium (supra) was applied prospectively to

arbitration agreements concluded after the date of judgment. However, the

legal context in the present batch of matters is different. Article 265 of the

Constitution prescribes that no tax shall be levied or collected except by

authority of law. The law must be valid in the sense that it must be within the

legislative competence of the legislature and consistent with other provisions

31 (2012) 9 SCC 552

Page 18 of 22 PART D

of the Constitution.32 Further, the power to levy tax is an incidence of

sovereignty. 33 If we are to give a prospective application to MADA (supra), it

would result in a situation where the legislation enacted by the States in

pursuance of their plenary powers under Entries 49 and 50 of List II may

conceivably be invalidated based on a position of law which has been

overruled. This would not be a constitutionally just outcome.

20. After India Cement (supra), Parliament enacted the Cess and Other Taxes

on Minerals (Validation) Act 1992 to validate the imposition and collection of

taxes on minerals made under the State legislations before 1991. The Central

Government also increased the rates of royalty to compensate the States for

the loss of mineral revenues. 34 The recalibration of the royalty rates protected

the States from the amount lost due to the abolition of cess on minerals and

mineral rights. The assesses submit that in the interregnum they have

structured their commercial bargains in terms of the prevalent law. Subsequently, Kesoram (supra) took a view that diverged from the ruling in

India Cement (supra). Kesoram (supra) is an operative fact based on which

many State legislatures have already enacted taxing statutes. A pragmatic

solution to reconcile the financial interests of the States and the assesses can

be achieved by proscribing the States from demanding taxes pertaining to

Entries 49 and 50 of List II of the Seventh Schedule for the period before

Kesoram (supra).

32 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [25] 33 Jindal Stainless Ltd (supra) [17] 34 See ‘Mineral Royalties’, Government of India, Ministry of Mines (2011) 16.

Page 19 of 22 PART D

21. The learned Solicitor General has pointed out that the total amount due by

the assesses (which includes public sector undertakings) to the governments

is substantial and will impose a heavy financial burden on the assesses.

During the pendency of the present reference, this Court passed interim

orders in the tagged matters. These include (i) rejection of the stay of

proceedings while allowing restitution in the event the appeal is allowed;35 (ii)

grant of interim stay subject to the assesses submitting bank guarantees for

the whole amount sought to be recovered;36 and (iii) direction to the States to

take no coercive steps against the assesses for recovery of any demands of

tax pending the appeal. 37 The payment or non-payment of the dues was thus

made subject to the outcome of the appeals or petitions. It is a settled legal

position that a beneficiary of an interim order of stay has to pay interest on

the amount withheld or not paid under the interim order in the event the

outcome goes against the beneficiary. 38

22. The total amount, that is the principal plus the interest, due by the assesses

in the pending matters may be substantial in comparison to their total net

worth. Steel Authority of India has stated on affidavit that retrospective

application of MADA (supra) will lead to revival of cumulative demands to the

tune of approximately Rupees three thousand crores from different States.

The delay in the court proceedings should not be to the detriment of the

35 Civil Appeal No. 5329 of 2002; Civil Appeal No. 4745 of 2006; Civil Appeal No. 4478 of 2010 36 Civil Appeal No. 6498 of 2008 37 Civil Appeal No. 874 of 2013; Civil Appeal No. 3642 of 2011; Civil Appeal No. 10082 of 2016; Civil

Appeal No. 4588 of 2017.

38 State of Rajasthan v. J K Synthetics Ltd., (2011) 12 SCC 518 [23]; State of U P v. Prem Chopra, 2022

SCC OnLine SC 1770 [24]

Page 20 of 22 PART E

assesses. 39 Taking into consideration the lapse of more than three decades

since India Cement (supra) and more than a decade since the matter was

referred to a larger Bench, equities will be balanced if the State governments

waive the outstanding interest accrued on the principal due from the

assesses. This direction applies to all assesses, regardless of whether they

have approached this Court or the High Courts challenging the validity of the

relevant statutes.

23. During the proceedings, the Solicitor General submitted that a few States do

not wish to collect the dues accrued before the decision in MADA (supra). It

is the prerogative of the State legislatures to determine whether to forego the

dues for the period before 25 July 2024.

E. Conclusion

24. The submission that MADA (supra) should be given prospective effect is

rejected.

25. Bearing in mind the consequences that would emanate from the past period,

the following conditionalities are directed to prevail:

a. While the States may levy or renew demands of tax, if any, pertaining to

Entries 49 and 50 of List II of the Seventh Schedule in terms of the law laid

down in the decision in MADA (supra) the demand of tax shall not operate

on transactions made prior to 1 April 2005;

b. The time for payment of the demand of tax shall be staggered in instalments

over a period of twelve years commencing from 1 April 2026; and

39 See K C Ninan v. Kerala State Electricity Board, 2023 SCC OnLine SC 663 [339]

Page 21 of 22 PART E

c. The levy of interest and penalty on demands made for the period before 25

July 2024 shall stand waived for all the assesses.

..….…….……………………………………CJI [Dr Dhananjaya Y Chandrachud]

..….…….………………………………………J [Hrishikesh Roy]

..….…….………………………………………J [Abhay S Oka]

…….……………………………………………J [J B Pardiwala]

…….……………………………………………J [Manoj Misra]

…….……………………………………………J [Ujjal Bhuyan]

…….……………………………………………J [Satish Chandra Sharma]

…….……………………………………………J [Augustine George Masih]

New Delhi;

August 14, 2024

Page 22 of 22