Supreme Court says states entitled to collect past mining dues from 2005; Rs 2 trillion impact expected

The Supreme Court of India has ruled that states are entitled to collect past dues on royalty and tax from mining companies dating back to April 1, 2005.

The judgment, delivered by a nine-judge constitution bench, allows for the recovery of these dues in staggered instalments over a 12-year period, commencing from April 1, 2026. Importantly, the court has nullified the imposition of interest and penalties on the outstanding amounts, Moneycontrol reported.

Context of the judgement

The Supreme Court’s decision follows a protracted legal battle spanning 25 years.

The controversy originated with a 1989 verdict by a seven-judge bench that classified royalty as a tax, a decision that was later challenged.

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A five-judge bench in 2004 identified a typographical error in the original ruling, leading to the case being referred to the current nine-judge bench, which has now clarified that royalty on mineral extraction does not constitute a tax.

The ruling is expected to have lasting implications for the mining sector and related industries in the country.

Monetary impact of the ruling

The judgment, which is estimated to have a total financial impact of approximately Rs 2 trillion, could see public sector undertakings (PSUs) facing liabilities in the region of Rs 600 billion, according to industry experts, Moneycontrol reported.

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Impact on mining companies, stock market

This ruling has generated significant ripples across the stock market, with shares of major mining companies, including Tata Steel, JSW Steel, GMDC, and MOIL, experiencing downward pressure.

Metals analyst Rakesh Arora told CNBC-TV18 that every firm that has mining operations in Jharkhand, Odisha, and Tamil Nadu will be affected. It is likely that every state would go ahead and enforce this ruling to augment tax revenue, he said.

Anticipation of additional levies on royalty payments has also weighed heavily on companies such as NMDC. Vedanta, a major player in the mining sector with substantial operations in Odisha, is expected to be particularly impacted.

The potential repercussions are also expected to extend to the cement industry, with companies like India Cements and Ramco Cements potentially facing increased costs due to the ruling.