Mining Firms to Pay States Backdated Taxes from 2005, Rules SC

A nine-judge constitution bench of the Supreme Court has issued a key ruling on mining company taxes, allowing states to collect past dues on royalty and taxes for mineral-bearing land dating back to April 1, 2005.

The court has permitted these dues to be paid in staggered instalments over 12 years, starting from April 1, 2026. However, the ruling has nullified any interest and penalties on these past dues.

This decision has negatively affected the shares of mining companies like Tata Steel, JSW Steel, GMDC, and MOIL. Additionally, the potential for a cess on royalty has put pressure on shares of companies like NMDC on Dalal Street. Vedanta, which has significant mining operations in Odisha, is also expected to be impacted by this ruling.

Hindustan Zinc’s CEO, Arun Misra, anticipates that states will gradually implement this ruling. Metals analyst Rakesh Arora also said that companies with mining operations in Odisha, Jharkhand, and Tamil Nadu will likely be affected. Arora added that every state is expected to enforce this ruling to increase its tax revenue.

Industry experts are also predicting that cement companies like India Cements and Ramco Cements could be affected by this ruling. The estimated total overdue cess is around ₹2 lakh crore, with public sector undertakings (PSUs) potentially facing an impact of about ₹60,000 crore.

On July 25, the Supreme Court confirmed that states have the authority to tax mineral rights. This judgment, which took 25 years to conclude, also clarified that the royalty charged by the Centre for Mineral Extraction is not considered a tax.

The issue began with a 1989 ruling by a seven-judge bench of the Supreme Court in a case where India Cements challenged Tamil Nadu. That ruling stated that royalty was considered a tax. However, in 2004, a five-judge bench of the Supreme Court determined that the 1989 verdict contained a typographical error and clarified that royalty is not a tax. This disagreement led to the matter being referred to a larger nine-judge bench for further review.

The nine-judge constitution bench was led by Chief Justice DY Chandrachud. However, Justice Nagarathna did not sign the judgment because she had disagreed with the primary ruling delivered on July 25.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.