Mining royalty case: Setback for mining operators as SC rules states can impose levies retrospectively

New Delhi: The Supreme Court ruled on Wednesday that its July 25 judgment upholding the power of state governments to tax mineral rights and mineral-bearing lands would apply with retrospective effect from April 1, 2005, despite the staunch opposition of the Centre and mining companies. Their demand that states’ right to tax be applied prospectively was rejected.

The decision triggered a slump in metal and mining stocks. Tata Steel dropped 1.6% and NMDC declined 6% among others. The apex court said tax payments to the states can be staggered in instalments over a period of 12 years starting April 1, 2026. No interest or penalties will apply on demands made for the period before July 25, 2024. The arrears demanded by state governments could amount to Rs 1.5-2 lakh crore, industry experts said.

The decision is likely to have farreaching consequences, including on consumers, the experts said. States welcomed the ruling, saying it would help them pay for welfare measures.


A senior mines ministry official said the decision will take a toll on mining, steel, power and coal companies. Investments by them will also be hit, he said.

Eight judges of a nine-member constitution bench led by chief justice DY Chandrachud had ruled in favour of the states in the July 25 verdict with one dissenter.

“This (the order) will affect the future of mining unless the government brings a legislation to overcome this judgement,” said RK Sharma, secretary general of the Federation of Indian Mineral Industries (FIMI), a lobby group.

According to FIMI, the Indian mining sector is already saddled with the highest taxation in the world. The July 25 judgement has given unbridled powers to states for imposing various taxes and levies, said FIMI additional secretary general BK Bhatia.

Vanita Bhargava, partner, Khaitan and Co., said that the retrospective application of taxes will place a significant financial burden on the industry, raising operational costs and forcing companies to navigate a complex and varied landscape of tax regimes across different states.

The Wednesday ruling led to a 1.26% fall in the Nifty Metal Index. Apart from Tata Steel and NMDC, others that fell include Hindustan Zinc (-0.69%), Coal India (-3%) and SAIL (-2.16%). SAIL had said in an affidavit that retrospective application will lead to the revival of cumulative demands to the tune of Rs 3,000 crore from different states.

The July 25 judgement said royalty payable on minerals was not in the nature of tax under the MMDR Act but a contractual consideration paid by the mining lessee to the lessor for the rights, which would allow states to impose taxes on top of royalty.

Senior counsel Rakesh Dwivedi, who appeared for the Jharkhand Mineral Development Authority and the Odisha government, termed Wednesday’s decision “a great victory for federalism.”

He said the court had chosen a middle path with regard to the financial implications.

“The judgment is balanced, fair and reasonable,” he said. “Levy of interest and penalty has been waived and tax demand payments have been staggered in instalments over a period of 12 years so as to avoid any cascading effect. This will ease pressure on mining operators.”

States need revenue for welfare measures and this decision was in the public interest, he said.

Solicitor general Tushar Mehta had argued that any order with retrospective effect would have a huge impact on the economy and would impose a potential liability of Rs 70,000-80,000 crore on public sector undertakings.

The past dues of Mahanadi Coalfields would be in excess of the net worth of many companies and application of the judgment retrospectively would push companies to bankruptcy, senior counsel Harish Salve had submitted.

The case stemmed from litigation dating back several decades over whether states have the power to tax and regulate under the Mines and Minerals (Development & Regulation) Act (Mines Act).