A Supreme Court (Court) bench consisting of the Hon’ble Justices Madan B Lokur, Deepak Gupta and Sanjay Kishan Kaul ruled on 13 October 2017 that contributions to the District Mineral Foundation Trusts (DMF) in different states cannot be imposed without specifying the rate at which such levy will be charged, as the same conflicts with the principles laid down in CIT v. Vatika Township Private Limited, [(2015) 1 SCC 1].
In view of the same, the Court has ruled that the DMF contribution will only be payable from the date on which the rates have been specified, i.e., 17 September 2015 for companies mining minerals other than coal, lignite and sand; and 20 October 2015 for companies mining coal, lignite and sand. The Court has categorically ruled that DMF contributions shall not be payable from 12 January 2015.
Further, with regard to the creation of DMF Trusts, the Court has stated that their creation from 12 January 2015 which is anterior to the date of publishing the Mines & Minerals (Contribution to District Mineral Foundation) Rules, 2015 (Rules) does not make it retrospective as the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) i.e. the parent Act, was already in force by then.
The Union of India promulgated the Mines and Minerals (Development and Regulation) Ordinance, 2015, followed by an amendment to the MMDR Act, i.e. the Amendment thereof, which came into force with effect from 12 January 2015. By way of the amendment, Section 9B was added to the MMDR Act making it compulsory for payment of contributions by mining companies to a DMF Trust. Thereafter, vide notifications dated 16 September 2015 and 17 September 2015, the Ministry of Mines directed that DMF trusts to be created by the State Governments shall be deemed to come into existence from 12 January 2015.
Vide the notification dated 17 September 2015, the Rules were notified pursuant to Section 9B (5) and (6) fixing the rates to be paid by the holder of the mining lease. The Rules were also deemed to have come into effect from 12 January 2015.
The Federation of Indian Mineral Industries (FIMI) challenged the aforesaid notifications before the High Court of Delhi in W.P. (C) No. 12027 of 2015 and obtained interim relief that no coercive steps shall be taken. Subsequently, numerous states including Chhattisgarh, Orissa and Uttar Pradesh notified their respective DMF Rules.
Thereafter, vide notification dated 31 August 2016 (Notification), Rule 3 of the Rules, which had earlier specified that the DMF contributions under Section 9B shall only be payable from the date of establishment of the Trust or the coming into force of the Rules, was now amended making the DMF contribution also payable from 12 January 2015. There were numerous challenges filed before different High Courts. Vide order dated 16 August 2016 in Transfer Case No. 43 of 2016, all similar challenges to the levy of DMF contributions were transferred to the Court, staying the proceedings in the High Courts.
The Petitioners argued that imposing the levy from 12 January 2015 by way of the Notification, was retrospective and impermissible in law. No retrospective levy can be made by way of subordinate legislation unless the parent statute specifically confers such a power. Neither Section 9B nor Section 20A of the MMDR Act grants State Governments the power to decide the date DMF Trusts should come into existence and they merely have the power to prescribe rates of the levy. In view of the same, the Petitioners’ contended that the levy cannot be made retrospective.
The Petitioners’ further argued that the levy being in the nature of tax, had to satisfy the components of a tax as laid down in Ganga Saran v. CST, [1985 Supp SCC 205] and CIT v. Vatika Township Private Limited, [(2015) 1 SCC 1] wherein the following had to be specified:
- Taxable event attracting the levy;
- Clear indication of the person on whom the levy is imposed;
- Rate at which the tax is imposed; and
- Measure or value to which the rate will be applied for computing the tax liability.
It was the Petitioners’ contention that the levy sought to be imposed satisfied none of the conditions listed above. No rate was specified nor was it clear as to which persons would be liable to pay the levy.
The Petitioners’ also argued that Section 9B being a conditional legislation, any levy under the same could only be imposed after fulfilling the conditions therein. Without establishing the DMF or identifying the areas affected or specifying the rate at which DMF contributions would be payable, the levy could not be imposed.
The Respondents, led by the Union of India, argued that there was no retrospectivity in the imposition of the levy with effect from 12 January 2015. The same was because the Amendment had already come into force from 12 January 2015, thereby meaning that Sections 9B(5) and (6) of the MMRD Act which constituted the source of the levy, were already in force from 12 January 2015. The Notifications were merely gap filling, in the sense that they clarified that the levy would also be imposed with effect from 12 January 2015. The case of A. Thangal Kunju Musaliar v. M. Venkitachalam Potti, [(1955) 2 SCR 1196] was relied upon.
Further, in light of the self-explanatory wording of Section 9B, the provision could not be said to be conditional and in any case, the levy was be applicable only to those areas where such mining operations are conducted. Further, the current lack of existence of the DMF Trust in some states or non-specification of rates are no bar to the imposition of the levy as they do not bar the companies from making a separate provision for the payment of contributions till such time the DMF Trust is created. Further, the rate is also not unknown as Section 9B (5) specifies that the rate shall not exceed one-third of the royalty paid.
The Hon’ble Court ruled held as follows:
- Merely because the DMFs have been established or are deemed to have been established from a date prior to the issuance of the relevant notifications does not make their operation retrospective Reliance was placed on Musaliar (supra)].
- In any event, the establishment of the DMFs (assuming the establishment is retrospective) from 12 January 2015 does not prejudicially affect any holder of a mining lease or a prospecting licence-cum-mining lease.
- In view of the failure of the Central Government to prescribe the rate on 12 January 2015 at which contributions are required to be made to the DMF, the contributions to the DMF cannot be insisted upon with effect from 12 January, 2015. Fixing the maximum rate of contribution to the DMF is insufficient compliance with the law laid down by the Constitution Bench in Vatika (supra).
- Contributions to the DMF are required to be made by the holder of a mining lease or a prospecting licence-cum-mining lease in the case of minerals other than coal, lignite and sand for stowing with effect from 17 September 2015 when the rates were prescribed by the Central Government.
- Contributions to the DMF are required to be made by the holder of a mining lease or a prospecting licence-cum-mining lease in the case of coal, lignite and sand for stowing with effect from 20 October 2015 when the rates were prescribed by the Central Government or with effect from the date on which the DMF was established by the State Government by a notification, whichever is later.
- The Notification issued by the Central Government is invalid and is struck down being ultra vires the rule making power of the Central Government under the MMDR Act.
This ruling has been welcomed as a relief to mining companies considering it makes it impermissible for the levy to be charged from 12 January 2015 and only makes the same payable from the date when the rates were specified. It clarifies that imposing a levy without prescribing rates is illegal. Further, the judgement is a welcome addition to tax law, clarifying once again that predictability and certainty are vital aspects to the imposition of such a levy.