SC verdict on mining royalty case to have large financial impact; arrears may hit up to Rs 2 lakh cr

The Supreme Court verdict on the mining royalty case will give a further jolt to the Indian mining industry and will have very large financial implications, as arrears may work out to the tune of more than Rs 1.5 lakh crore to Rs 2 lakh crore, industry players said on Wednesday.

The Supreme Court on Wednesday upheld the power of states to levy tax on mineral rights and mineral-bearing land and allowed them to seek refund of royalty from April 1, 2005 onwards. According to a senior mines ministry official, the verdict will have a very large financial impact on mining, steel, power and coal companies.

"The investment of the companies operating in the mining, power and steel sectors will also be hit," the official said. According to the Miners' body FIMI, the Indian mining sector is already saddled with the highest taxation in the world.

The judgement of the Supreme Court of 25th July 2024 has given unbridled powers to States for imposing various taxes and levies, said B K Bhatia, Additional Secretary General FIMI. "Now this order of 14th August mandating collecting dues retrospectively with effect from 1st April 2005 will give a further jolt to the Indian mining industry as arrears may work out to the tune of more than Rs 1.5 to Rs 2 lakh crore and the mines in the states like Odisha and Jharkhand would be most affected," Bhatia added.

In a majority 8:1 verdict on July 25, the bench had held that legislative power to tax mineral rights vests with states. The verdict had overruled a 1989 judgement, which held that only the Centre has the power to impose a royalty on minerals and mineral-bearing land.

According to Bhatia, this (the latest SC verdict) is bound to have a crippling impact not only on the mining industry but on the entire value chain and will lead to an unprecedented inflationary rise in all the end products.

"Considering the severity of the issue and to have a stable tax regime for bolstering the growth of the mining sector, we feel that the union government should take necessary legislative mitigating measures on an urgent basis," Bhatia added.

Echoing similar sentiments, the International Copper Association India Managing Director Mayur Karmarkar said that these changes coming from the Supreme Court disturb the business models of the industry. According to a Vedanta spokesperson, the company is evaluating the Supreme Court judgement.

"We can confirm that we have no material demands raised upon any of our businesses at this time. If and when any such demands are raised, Vedanta will consider all regulatory and legal remedial measures on a case-to-case basis," the Vedanta spokesperson said.

According to a source, the Centre expects an impact of around Rs one lakh crore on the mining industry due to the SC verdict. The source further said that the decision on GST on royalty is likely to be taken in the future.

Rakesh Surana, Partner, Deloitte India said that "this ruling is positive for mineral-bearing states, providing a substantial revenue stream." On the other hand, it allows for the retrospective taxation of mining companies, which could significantly strain the industry.

The specifics of these taxes, once clarified, will undoubtedly lead to increased mining costs and, consequently, higher metal costs -- potentially triggering broader inflationary trends. Despite some mitigations, such as the staggering of payments over 12 years and exemptions on penalties, the judgment arrives at a challenging time.

Globally, the steel industry is struggling, with a sluggish recovery in the Chinese economy leading to significant imports into India and putting downward pressure on the market, Surana said. According to Amitava Mukherjee, CMD, NMDC, "it will impact the mining industry at large and we are evaluating to what extent it would be affecting us.

To comment in detail we are assessing both short-term and long-term implications." Meanwhile, Coal India in a filing to the BSE said, "... CIL is going through the above order and based on the above, the company will assess the probable financial impact thereof, which will be disclosed in due course of time."

On Wednesday, a nine-judge Constitution bench headed by Chief Justice DY Chandrachud said the argument for the prospective effect of the July 25 ruling was rejected.

The bench also comprising justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, however, said there will be conditionalities on payment of past dues.

It said payment of dues by the Centre and mining companies can be made to mineral-rich states in a staggered manner over the next 12 years. The bench, however, directed the states to not impose a penalty of any kind on payment of dues.