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There could be “a ₹1 lakh crore or more” hit on miners operating across sectors such as coal, steel, power, cement, iron ore and others post the SC verdict allowing States to collect dues on royalty of minerals since April 2005, a senior Mines Ministry official has said.
Levy of GST on such a royalty could be taken up / considered “in future”; but will not solve “immediate concerns of retrospective taxation”, the official told businessline.
The payment of tax for this period would be in staggered instalments across 12 years, commencing from April 1, 2026.
The Centre had opposed retrospective levy of tax (since 1989) on mines and mineral-bearing land by States. It argued that any order requiring retrospective payment would have a “multi-polar impact” on the economy. It had then stated, the hit on public sector undertakings could be as high as ₹70,000-80,000 crore (for a 35-year period).
“Such refunds will ultimately burden the end user, with the mining industry facing a bill of at least ₹100,000 crore across sectors,” the official said. “Immediate concerns” continue to be on the financial burden of such dues that will be put on PSUs and private companies.
Earlier on July 25, a 9-judge Constitution Bench of the Supreme Court held by an 8:1 majority that states have the power to levy tax on mineral rights. It held that legislations like Mines and Minerals (Development and Regulation) Act 1957 do limit such power of the States (like Chhattisgarh, Jharkhand and Odisha – whose per capita income is below the national average and trail in economic development).
It had said royalty paid to States (by mining lease holders) was not tax.
Royalties arise from mining lease agreements rather than legal requirements, payments are made to lessors (either State government or private parties) rather than public authorities, and royalties compensate for access to mineral reserves rather than serving public purposes.
On Wednesday, the apex court settled matters whether such taxation would have a retrospective or prospective effect.
Industry’s concern
According to BK Bhatia, Additional Secretary General, Federation of Indian Mineral Industries (FIMI) – one of India’s major lobby groups that has representation from Vedanta, Coal India, NMDC, among others – the country’s mining sector is already saddled with highest taxation. Allowing collection of dues retrospectively “will further jolt the mining industry as arrears may work out to the tune of more than ₹1,50,000–2,00,000 crore”.
“This is bound to have crippling impact (also) on the entire value chain, will lead to unprecedented inflationary rise in all the end products,”he said. Legislative measures to mitigate the impact on the industry is required on an urgent basis”.
Mines Ministry officials said Mahanadi Coalfields – a Coal India subsidiary – will have a retrospective tax burden – without interest component – of ₹35,000 crore while Tata Steel would be cut a bill of ₹15,000 crore.
PSU steel-major SAIL in its affidavit stated retrospective application of Mineral Area Development Authority Act (MADA) will lead to cumulative demands of approximately ₹3,000 crore from States. It was also presented that total amount (principal plus the interest), due “may be substantial in comparison to their total net worth”.
India’s largest iron ore miner, NMDC was evaluating impact of the verdict. “It will impact the mining industry at large ... We are assessing both short-term and long-term implications,” Amitava Mukherjee, CMD, NMDC, told businessline.
Levy of interest in such dues or penalty in demand stand waived.
While some companies have made provisions, but the “hit will still be very high” with “substantial financial implications” on their profitability and net worth.
According to Mayur Karmarkar, Managing Director of the International Copper Association India, said: “The Supreme Court’s decision can disrupt existing business models within the industry.
Mining stocks take a Hit
Mining stocks take a hit on Wednesday.
Shares of NMDC slumped 6.08 per cent at ₹210.95 followed by Hindustan Copper (4.25 per cent), MOIL (3.47 per cent), Coal India (3.18 per cent), National Aluminium Company (2.71 per cent), SAIL (2.26 per cent), GMDC (1.39 per cent), Tata Steel (1.81 per cent) and Vedanta (0.63 per cent) on the BSE.
Among the sectoral indices, The BSE Metal was the worst performer dropping 1.51 per cent to 30,312.05.
(Inputs by KS Badri Narayanan from Chennai)
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