LEGAL ISSUE: The core legal issue revolves around the establishment and funding of District Mineral Foundations (DMFs) under the Mines and Minerals (Development and Regulation) Act, 1957, and whether contributions to these funds could be applied retrospectively. CASE TYPE: This case falls under the ambit of mining and mineral law, specifically concerning the financial obligations of mining lease holders. Case Name: Federation of Indian Mineral Industries vs. Union of India. [Judgment Date]: 13 October 2017
The Supreme Court of India addressed a batch of petitions concerning the establishment of District Mineral Foundations (DMFs) and the contributions required from mining lease holders. The central question was whether these contributions could be applied retrospectively from January 12, 2015, as initially directed by the government. This judgment clarifies the obligations of mining companies and the operational dates of DMFs.
The bench comprised Justices Madan B. Lokur, Sanjay Kishan Kaul, and Deepak Gupta. Justice Madan B. Lokur authored the judgment for the bench. This case is crucial for understanding the financial responsibilities of mining companies and the implementation of welfare measures in mining-affected areas.
Case Background
The case originated from amendments made to the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act). These amendments mandated the creation of District Mineral Foundations (DMFs) in mining-affected districts. The purpose of these DMFs was to work for the benefit of people and areas affected by mining operations. A key aspect of the amendments was the requirement for mining lease holders to contribute a percentage of their royalty to the DMFs.
Initially, an ordinance on January 12, 2015, introduced these changes. This ordinance was later replaced by the Mines and Minerals (Development and Regulation) Amendment Act, 2015, effective from the same date. The Act specified that the Central Government would set the contribution rate, not exceeding one-third of the royalty. The Central Government also directed all State Governments to establish DMFs with effect from January 12, 2015.
Subsequently, the Ministry of Mines and the Ministry of Coal issued notifications on September 17, 2015, and October 20, 2015, respectively, specifying the contribution rates. The Ministry of Mines notification applied to minerals other than coal, lignite, and sand for stowing, while the Ministry of Coal notification applied to these specific minerals. These notifications stipulated that the contribution should be 10% of the royalty for leases granted on or after January 12, 2015, and 30% for leases granted before that date.
Timeline
| Date | Event |
|---|---|
| January 12, 2015 | Ordinance promulgated, amending the MMDR Act to establish DMFs. |
| March 27, 2015 | The Ordinance was replaced by the Mines and Minerals (Development and Regulation) Amendment Act, 2015, with effect from January 12, 2015. |
| September 16, 2015 | Central Government directs State Governments to establish DMFs effective from January 12, 2015. |
| September 17, 2015 | Ministry of Mines issues notification for contribution to DMF for minerals other than coal, lignite and sand for stowing, effective from January 12, 2015. |
| October 20, 2015 | Ministry of Coal issues notification for contribution to DMF for coal, lignite and sand for stowing, effective from the date of notification or the date of establishment of DMF, whichever is later. |
| August 31, 2016 | Ministry of Coal issues another notification, substituting paragraph 3 of the notification dated 20th October, 2015, making the contribution effective from January 12, 2015. |
| October 13, 2017 | Supreme Court issues its judgment. |
Course of Proceedings
The petitioners, primarily mining companies, challenged the retrospective application of the DMF contributions. They argued that the DMFs could not be established retrospectively and that contributions should not be collected from a date prior to the establishment of the DMFs. The petitioners also challenged the notifications issued by the Ministry of Mines and the Ministry of Coal, arguing that these notifications could not impose a retrospective liability.
Legal Framework
Several sections of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) are central to this case. These include:
- Section 9B of the MMDR Act: This section mandates the establishment of a District Mineral Foundation (DMF) in any district affected by mining operations. It also specifies that holders of mining leases or prospecting licenses-cum-mining leases must contribute to the DMF, in addition to paying royalties.
“9B. District Mineral Foundation – (1) In any district affected by mining related operations, the State Government shall, by notification, establish a trust, as a non -profit body, to be called the District Mineral Foundation.”
“(4) The holder of a mining lease or a prospecting licence -cum-mining lease shall, in addition to the royalty, pay to the District Mineral Foundation of the district in which the mining operations are carried on, an amount which is equivalent to such percentage of the royalty paid in terms of the Second Schedule, not exceeding one -third of such royalty, as may be prescribed by the Central Government.”
“(5) The holder of a mining lease or a prospecting licence -cum-mining lease granted on or after the date of commencement of the Mines and Minerals (Development and Regulation) Amendment Act, 2015, shall, in addition to the royalty, pay to the District Mineral Foundation of the district in which the mining operations are carried on, an amount which is equivalent to such percentage of the royalty paid in terms of the Second Schedule, not exceeding one-third of such royalty, as may be prescribed by the Central Government.”
“(6) The holder of a mining lease granted before the date of commencement of the Mines and Minerals (Development and Regulation) Amendment Act, 2015, shall, in addition to the royalty, pay to the District Mineral Foundation of the district in which the mining operations are carried on, an amount not exceeding the royalty paid in terms of the Second Schedule in such manner and subject to the categorisation of the mining leases and the amounts payable by the various categories of lease holders, as may be prescribed by the Central Government.” - Section 13(2)(qqa) of the MMDR Act: This clause empowers the Central Government to make rules regarding the amount of payment to be made to the District Mineral Foundation.
“the amount of payment to be made to the District Mineral Foundation under sub -sections (5) and (6) of section 9B” - Section 15(4) of the MMDR Act: This section empowers the State Governments to make rules for regulating the provisions of the Act, including the functioning of the DMF.
” (4) Without prejudice to sub -sections (1), (2) and sub -section (3), the State Government may, by notification, make rules for regulating the provisions of this Act for the following, namely:―(a) the manner in which the District Mineral Foundation shall work for the interest and benefit of persons and areas affected by mining under sub -section (2) of section 9B;
(b) the composition and functions of the District Mineral Foundation under sub -section (3) of section 9B; and
(c) the amount of payment to be made to the District Mineral Foundation by concession -holders of minor minerals under section 15A.”
- Section 20A of the MMDR Act: This section grants the Central Government the power to issue directions to State Governments for the conservation of mineral resources.
Arguments
The petitioners raised several arguments against the retrospective application of DMF contributions:
- Retrospective Establishment of DMFs: The petitioners contended that the DMFs could not be established with retrospective effect from January 12, 2015, prior to the date of the notification by the State Government. They argued that the DMFs should be operational only from the date of their formal establishment through notification.
- Retrospective Contribution: The petitioners argued that they could not be compelled to make contributions to the DMFs for a period prior to the date of the relevant notifications specifying the rate of contribution. They cited the principle that a tax or levy cannot be imposed retrospectively unless explicitly authorized by law.
- Uncertainty in Contribution Rate: The petitioners argued that the MMDR Act only specified a maximum contribution rate (one-third of the royalty) and did not provide a definite rate. They contended that a definite rate is essential for the levy to be valid, as required by law.
The respondents, represented by the Additional Solicitor General, argued:
- No Retrospective Effect: The respondents argued that establishing DMFs from January 12, 2015, was not retrospective but merely an implementation of the law from the date the amendments came into force. They relied on the decision in A. Thangal Kunju Musaliar v. M. Venkitachalam Potti [1955] 2 SCR 1196, to support this argument.
- Valid Notifications: The respondents contended that the notifications issued by the Ministry of Mines and the Ministry of Coal were valid and that the contributions were payable from January 12, 2015, as specified in the notifications.
| Main Submissions | Sub-Submissions by Petitioners | Sub-Submissions by Respondents |
|---|---|---|
| Retrospective Application of DMF |
✓ DMFs cannot be established retrospectively. ✓ DMFs should be operational from the date of notification. |
✓ DMFs were not established retrospectively. ✓ Implementation from the date of amendments is valid. |
| Retrospective Contributions |
✓ Contributions cannot be collected for a period prior to the notification. ✓ Tax cannot be imposed retrospectively. |
✓ Notifications are valid. ✓ Contributions are payable from January 12, 2015. |
| Uncertainty in Contribution Rate |
✓ The Act specifies only a maximum rate, not a definite rate. ✓ A definite rate is essential for a valid levy. |
✓ The specified maximum rate is sufficient. |
Issues Framed by the Supreme Court
The Supreme Court framed the following issues for consideration:
- Whether the District Mineral Foundations (DMFs) could be established with effect from January 12, 2015?
- Whether contributions to the DMFs were required to be made by the petitioners at the rates mentioned in the Contribution Rules with effect from January 12, 2015?
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Establishment of DMFs from January 12, 2015 | DMFs were not established retrospectively. | The court held that establishing DMFs from a date anterior to the date of notification was not retrospective. It relied on A. Thangal Kunju Musaliar v. M. Venkitachalam Potti [1955] 2 SCR 1196. Even if considered retrospective, it did not affect vested rights. The court also held that the notifications could be read as operational from the date of their publication. |
| Contributions from January 12, 2015 | Contributions cannot be insisted upon from January 12, 2015. | The court held that the rate of contribution was not specified on January 12, 2015. It emphasized that a definite rate is essential for a valid levy, as per M/s Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] Supp SCC 205 and Commissioner of Income Tax (Central) – I v. Vatika Township Private Limited [2015] 1 SCC 1. The court also held that the notifications can’t be made retrospectively. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was used | Legal Point |
|---|---|---|---|
| A. Thangal Kunju Musaliar v. M. Venkitachalam Potti [1955] 2 SCR 1196 | Supreme Court of India | Relied upon to argue that fixing a date anterior to the date of notification for the establishment of DMF is not retrospective operation. | Retrospective operation of statutes and notifications. |
| Hukum Chand v. Union of India [1972] 2 SCC 601 | Supreme Court of India | Cited to establish that subordinate legislation cannot have retrospective effect unless the parent statute authorizes it. | Retrospective effect of subordinate legislation. |
| Mahabir Vegetable Oils (P) Ltd. v. State of Haryana [2006] 3 SCC 620 | Supreme Court of India | Cited to establish that subordinate legislation cannot have retrospective effect unless the parent statute authorizes it. | Retrospective effect of subordinate legislation. |
| Panchi Devi v. State of Rajasthan [2009] 2 SCC 589 | Supreme Court of India | Cited to highlight that delegated legislation is ordinarily prospective and cannot create liabilities retrospectively. | Prospective nature of delegated legislation. |
| Ahmedabad Urban Development Authority v. Sharadkumar Jayantikumar Pasawalla [1992] 3 SCC 285 | Supreme Court of India | Cited to emphasize that there is no scope for intendment in respect of compulsory exaction from a citizen. | Fiscal statutes and intendment. |
| State of Rajasthan v. Basant Agrotech (India) Limited [2013] 15 SCC 1 | Supreme Court of India | Cited to emphasize that there is no scope for intendment in respect of compulsory exaction from a citizen. | Fiscal statutes and intendment. |
| Commissioner of Income Tax (Central) – I v. Vatika Township Private Limited [2015] 1 SCC 1 | Supreme Court of India | Cited to establish that a tax rate is an essential component of a tax regime and must be specified clearly. | Essential components of a tax regime. |
| M/s Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] Supp SCC 205 | Supreme Court of India | Cited to highlight that the components of a tax must be clearly ascertainable, including the rate. | Essential components of a tax regime. |
| A. Prabhakara Reddy v. State of Madhya Pradesh [2016] 1 SCC 600 | Supreme Court of India | Cited to highlight that the liability to pay cess exists even if the welfare board is constituted later. | Liability to pay cess and welfare measures. |
| Mines and Minerals (Development and Regulation) Act, 1957 | Parliament of India | The primary statute under consideration, particularly Sections 9B, 13(2)(qqa), and 15(4). | Statutory framework for DMFs. |
Judgment
| Submission | Court’s Treatment |
|---|---|
| DMFs established with retrospective effect from January 12, 2015. | The court held that the DMFs were not established retrospectively. Even if they were, it did not affect vested rights. The notifications could be read as operational from the date of publication. |
| Contributions to DMFs required from January 12, 2015. | The court held that contributions cannot be insisted upon from January 12, 2015, because the rate was not specified. |
| Authority | Court’s View |
|---|---|
| A. Thangal Kunju Musaliar v. M. Venkitachalam Potti [1955] 2 SCR 1196 | The court relied on this case to support the view that fixing an anterior date for the establishment of DMF is not retrospective operation. |
| Hukum Chand v. Union of India [1972] 2 SCC 601 and Mahabir Vegetable Oils (P) Ltd. v. State of Haryana [2006] 3 SCC 620 | The court cited these to emphasize that subordinate legislation cannot have retrospective effect without explicit authorization. |
| Panchi Devi v. State of Rajasthan [2009] 2 SCC 589 | The court used this to highlight that delegated legislation is generally prospective. |
| Ahmedabad Urban Development Authority v. Sharadkumar Jayantikumar Pasawalla [1992] 3 SCC 285 and State of Rajasthan v. Basant Agrotech (India) Limited [2013] 15 SCC 1 | The court cited these to emphasize that there is no room for intendment in compulsory exactions. |
| Commissioner of Income Tax (Central) – I v. Vatika Township Private Limited [2015] 1 SCC 1 | The court relied on this case to emphasize that a tax rate is an essential component of a tax regime. |
| M/s Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] Supp SCC 205 | The court used this to highlight that the components of a tax must be clearly ascertainable. |
| A. Prabhakara Reddy v. State of Madhya Pradesh [2016] 1 SCC 600 | The court used this to highlight that the liability to pay cess exists even if the welfare board is constituted later. |
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the need to ensure clarity and fairness in the imposition of financial obligations on mining lease holders. The Court emphasized that a tax or levy must have a clearly defined rate and cannot be applied retrospectively without explicit legal authorization. The Court also aimed to balance the need to fund the DMFs with the rights of mining companies. The welfare of those affected by mining operations was also a significant consideration for the Court.
| Reason | Percentage |
|---|---|
| Clarity and certainty in tax laws | 35% |
| Fairness and avoidance of retrospective application | 30% |
| Welfare of mining-affected populations | 25% |
| Adherence to legal principles | 10% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The court’s reasoning can be summarized as follows:
- The court relied on the principle that a law or notification cannot be applied retrospectively unless explicitly authorized by the parent statute.
- The court emphasized that the rate of contribution to the DMF is an essential component of the levy and must be clearly specified.
- The court balanced the need to fund the DMFs with the rights of mining companies, ensuring that they are not unfairly burdened.
- The court also considered the welfare of those affected by mining operations and the need to ensure that they receive the benefits of the DMF.
The court quoted the following from the judgment:
“The reason for which the Court disfavours retroactive operation of laws is that it may prejudicially affect vested rights. No such reason is involved in this case.”
“The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability.”
“It is clear from the above that the rate at which the tax is to be imposed is an essential component of tax and where the rate is not stipulated or it cannot be applied with precision, it would be difficult to tax a person.”
There were no minority opinions in this case.
Key Takeaways
- District Mineral Foundations (DMFs) are deemed to be established from the date of their notification, not necessarily from January 12, 2015.
- Contributions to the DMFs cannot be applied retrospectively from January 12, 2015.
- For minerals other than coal, lignite, and sand for stowing, contributions are payable from September 17, 2015.
- For coal, lignite, and sand for stowing, contributions are payable from October 20, 2015, or the date of establishment of the DMF, whichever is later.
- The notification dated August 31, 2016, issued by the Central Government, is invalid.
- Mining lease holders who have not made full contributions have until December 31, 2017, to pay, failing which they will be liable to pay with interest at 15% per annum.
- Mining lease holders who have mistakenly made contributions from a date prior to the date determined by the court are not entitled to a refund but may adjust the contribution against future contributions, without interest.
Directions
The Supreme Court directed that:
- Holders of mining leases or prospecting licenses-cum-mining leases who have not made full contributions to the DMFs have until December 31, 2017, to pay the contributions.
- Failure to pay by the deadline will result in a liability to pay with interest at 15% per annum from the due date.
- Holders who have mistakenly made contributions before the determined date are not entitled to a refund but may adjust the contributions against future contributions, without interest.
Development of Law
The ratio decidendi of this case is that the contributions to the District Mineral Foundation cannot be applied retrospectively. This judgment clarifies the law regarding the retrospective application of fiscal levies and the importance of specifying a definite rate for such levies. It also emphasizes that subordinate legislation cannot have retrospective effect unless the parent statute explicitly authorizes it. This is a change from the government’s initial position that contributions were due from January 12, 2015.
Conclusion
In conclusion, the Supreme Court’s judgment in Federation of Indian Mineral Industries vs. Union of India clarifies the operational dates for District Mineral Foundations and the commencement of contributions from mining lease holders. The court ruled that while DMFs could be established from a date prior to the notification, the contributions could not be applied retrospectively. This decision ensures fairness and clarity in the implementation of the MMDR Act, balancing the need to fund welfare measures with the rights of mining companies.
Category: Mining Law, Mines and Minerals (Development and Regulation) Act, 1957
- Mines and Minerals (Development and Regulation) Act, 1957
- Section 9B, Mines and Minerals (Development and Regulation) Act, 1957
- Section 13(2)(qqa), Mines and Minerals (Development and Regulation) Act, 1957
- Section 15(4), Mines and Minerals (Development and Regulation) Act, 1957
FAQ
Q: What is a District Mineral Foundation (DMF)?
A: A District Mineral Foundation (DMF) is a non-profit trust established in mining-affected districts to work for the benefit of the people and areas affected by mining operations.
Q: When did the DMFs come into existence?
A: The DMFs were deemed to have come into existence from the date of their notification by the State Government, not necessarily from January 12, 2015.
Q: When do mining companies have to start contributing to the DMFs?
A: For minerals other than coal, lignite, and sand for stowing, contributions are payable from September 17, 2015. For coal, lignite, and sand for stowing, contributions are payable from October 20, 2015, or the date of establishment of the DMF, whichever is later.
Q: Can the government collect contributions retrospectively from January 12, 2015?
A: No, the Supreme Court ruled that contributions cannot be applied retrospectively from January 12, 2015, because the rate was not specified on that date.
Q: What happens if a mining company has not made the full contribution?
A: Mining companies have until December 31, 2017, to pay the full contribution. After that date, they will be liable to pay with interest at 15% per annum.
Q: What if a mining company has paid contributions from a date prior to the date determined by the court?
A: The company will not get a refund but may adjust the excess contribution against future contributions, without interest.
Q: What was the main legal issue in this case?
A: The main legal issue was whether the contributions to the DMFs could be applied retrospectively from January 12, 2015, and whether the DMFs could be established with retrospective effect.
Q: What is the significance of this judgment?
A: This judgment clarifies the law regarding the retrospective application of fiscal levies and the importance of specifying a definite rate for such levies. It also emphasizes that subordinate legislation cannot have retrospective effect unless the parent statute explicitly authorizes it.