The country’s metal and mining companies’ operating costs are likely to rise significantly if state governments impose additional mining taxes in the wake of a Supreme Court ruling, Fitch Ratings said in a note on Monday. India’s top court late last month upheld the right for state governments to levy taxes on minerals extraction and last week allowed them to do so in restrospect, dating back to April 1, 2005.

The taxes would be paid over a period of 12 years in instalments starting from April 1, 2026, the court ruled.

The case followed a long-running dispute between Indian states and the federal government over states' right to impose taxes on minerals.

"We see increased risks from a sustained weakening of the companies' EBITDA (Earnings before Interest, Tax, Depreciation, and Amortisation) margins due to the prospective levies," Fitch Ratings said.

The rating agency said the credit risk from prospective levies would be higher for Tata Steel than for JSW Steel. "We believe Tata Steel Limited's (TSL, BBB-/Negative) low rating headroom exposes it to greater credit risks from the impact of prospective taxes compared with JSW Steel Limited," Fitch said.

The rating agency said steel and mining companies were more at risk from state-imposed taxes than other sectors such as power and cement companies operating in the mining industry. "Metal and mining companies have limited ability to pass on the potential increase in operating costs, as their products track global prices," Fitch said. The impact of the court ruling would gradually become clearer over the next few quarters, Fitch said, adding it was not yet known whether individual states would step up requests for past dues or impose additional taxes.

Last week, brokerage Macquarie said the retrospective tax levy would hit state-run Coal India, which and Tata Steel the most among metals and mining firms.