The Supreme Court’s decision declares that royalties on minerals are not taxes and permits states to impose taxes on miners and mineral-bearing properties. This can put mining corporations under further financial strain and result in legal action.
Leading mining and metals firms’ shares, including those of NMDC, Tata Steel, MOIL, MMTC, Hindustan Zinc, Vedanta, Coal India, and SAIL, saw a notable drop of up to 6% during today’s trading session. This precipitous decline was brought about by the Supreme Court’s recent decision permitting states to demand reimbursements of mineral royalties from mining companies and the Center, with retroactive effect from April 1, 2005.
The Center sought the prospective application of the Supreme Court’s July 25 ruling, which maintained the states’ jurisdiction to tax mineral rights and land containing minerals, but the Court denied the Center’s request on Wednesday.
Judgment
In a majority decision of 8 to 1, the nine-judge Constitution bench decided on July 25 that states are allowed to tax mines and mineral-bearing areas under the Constitution, and that the royalty paid on extracted minerals is not considered a tax.
CJI Chandrachud and seven other justices said in the majority ruling that royalty is not a tax. It is a sum of money that the mining lessee contractually pays the lessor in exchange for the use of their mineral rights.
The terms of the mining lease provide a contractual obligation to pay royalties. Just because a legislation allows for the recovery of payments given to the government as arrears does not mean that such payments are taxes.”
As we previously stated, mining corporations may face increased financial burdens as a result of this ruling, which might disrupt cash flow and result in overlapping financial commitments.
Tata Steel Ltd has previously said that it will investigate its legal alternatives in the event that the exorbitant requests made by the court on July 25th be enforced retroactively.
According to a regulatory filing on Friday, Tata Steel has recorded contingent liabilities of ₹17,347 crore in its financial statements as it waits for more information.
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