A nine-judge bench of the Supreme Court on July 31 reserved its verdict on whether its judgment holding that states have the power to impose tax on mineral extraction will be applicable prospectively or retrospectively.

During the course of the hearing, Solicitor General Tushar Mehta, who appeared for the Union government, told the court that making the judgement applicable retrospectively will have a big impact not only on private and public players involved in mineral extraction but on the economy as a whole.

He suggested that the judgment be made applicable retrospectively in the interest of the economy. Attorney General Venkatramani told the court that minerals play a very important role in the country's development as they are used everywhere from nanotechnology to medical technology, he thus urged the court not to disrupt the sector by making the judgment applicable retrospectively.

Senior advocate Rakesh Dwivedi, who appeared for Jharkhand, contended that not making the judgment applicable retrospectively would amount to travesty of justice. According to Dwivedi, many states had enacted laws levying tax on mineral extraction over 30 years ago, if the judgment were to be made applicable retrospectively, it would amount the states not benefiting from the law.

A nine-judge Constitution bench of the Supreme Court by a majority  on July 24 held that the royalty payable on minerals under the Mines and Minerals (Development and Regulation) Act, 1957 is not a tax.

The SC bench said states have the power to impose tax and levies such as cess on land in which the mineral is extracted from.

Court held on on July 25 that royalty is a contractual consideration by a lessor for mineral rights. However, royalties are payments a user makes to the owner of an intellectual property.

Justice Nagarathna was the sole judge in the nine judge bench to dissent with eight other judges. She held that royalty is not a tax and states did not have the competence to levy tax on land from which minerals are extracted.

After the judgment was pronounced, one section of lawyer urged the court to make the judgment applicable prospectively while the others asked the court to make the judgement applicable retrospectively.

A nine-judge Constitution bench headed by Chief Justice DY Chandrachud, which reserved its verdict on March 14 after hearing a batch of 86 appeals filed by different state governments, mining companies and public sector undertakings for eight days, pronounced the verdict.

During the hearing, the top court had said the Constitution vests the power to impose tax on mineral rights not in Parliament alone but also the states and underlined that such authority should not be diluted.

The issue arose after the 1989 verdict in the case of India Cements Limited's plea against Tamil Nadu by a seven-judge bench of the apex court which held that royalty was a tax.

However, a five-judge bench of the apex court ruled in 2004  that there was a typographical error in the 1989 verdict and that royalty was not a tax. The dispute was then referred to a larger nine-judge bench.

The top court heard a batch of 86 appeals filed by mining companies, public sector undertakings (PSUs) and state governments arising from conflicting verdicts passed by different high courts on the issue.