SC allows state govts to tax mining activities retrospectively; who pays, how much?

The tax demand raised by states under different laws could be further litigated based on merits on a case-to-case basis.

The Supreme Court (SC) recently allowed state governments to collect mining companies' tax dues pending from April 1, 2005. While the apex court's ruling has been negative, analysts at Motilal Oswal Financial Services (MOFSL) and Kotak Institutional Equities (KIE) believe the financial and cash flow impact on most companies will be minimal.

The court has also provided relief by allowing staggered payment over 12 years starting April 26. In addition, any interest and penalties levied on or before July 25 shall be waived, noted MOFSL, saying that its interactions with companies suggest that this could be a long-drawn process, and they are waiting for clarity on what course of action different states take.

Meanwhile, KIE said in its latest report that the SC judgement settles a point of law, not individual cases and does not directly crystalize the liability of mining companies, noted Kotak Securities. The demand raised by states under different laws could be further litigated based on merits on a case-to-case basis, it added.

Tata Steel: Outstanding contingent liability until June 2024 is Rs 17,300 crore. The period for calculation needs more clarity as per the company basis Q1FY25 earnings call. Further, clarity is awaited on whether this amount includes interest and penalty.

Also Read | SC ruling negative for mining companies, but impact on profitability likely to be limited

SAIL: Demand of Rs 5,040 crore by Jharkhand towards “Market Fee” on transaction value of coal, iron and steel up to March 2023.

Chhattisgarh State enacted Chhattisgarh (Adhosanrachna Vikas ewam Paryaawaran) Upkar Adhiniyam, 2005 and levied Cess on the mineral extracted in the State of Chhattisgarh. Rs 210 crore deposited under protest and shown as Deposit with Govt. and treated as contingent liability.

JSPL: Forest development tax/fee in Karnataka claims of Rs 4,690 crore (Rs 920 cr paid under protest). Demand of cess by Dept of Transport, Goa (included under [Sales Tax/ VAT/Special Entry tax/Electricity duty/Goa Rural cess] with total Rs 1,550 crore contingent liabilities)

Hindalco: The Company stated no such demand made till date in the earnings call for Q1FY25

NALCO: Claims disclosed in contingent liabilities as due to "Dept. of Mines, Govt of Odisha"

Vedanta: The Company has not faced any substantial demands related to this matter in the past and plans to explore legal options if and when any demands arise.

Hindustan Zinc: Rajasthan Govt. issued "Rajasthan Environment and Health Cess Rules, 2008" Rs 150/ton of ore as cess. The notification was rescinded in January 2017. It has no obligation after that date. The matter is pending for final hearing.

NMDC: Disputed claims under Karnataka Forest Act; Disputed claims under Property tax, Export tax, Conservancy Tax, Sales tax, Service Tax, Income tax etc., total Rs 2,360 crore.

Holding a contrarian view, ICICI Securities said that the latest Supreme Court ruling on mining cess may have a far-reaching impact on the sector.

For Coal India, pricing under Fuel Supply Agreements (FSA) is at the mine head, so any additional costs, including levies and taxes, are passed on to buyers, it said, adding that thus, potential new or retrospective levies are unlikely to significantly impact the company’s earnings.

Companies with significant captive resources such as Tata Steel, SAIL, Hindalco and NALCO are likely to be impacted the most. In the case of Coal India and NMDC, contract structures allow the pass-through of any duties, cess, or taxes to end customers, said analysts at ICICI Sec.

Coal India may be in a better position to pass on any additional cess to end-customers owing to its near-monopoly market position, they added. However, in the case of NMDC, it could be slightly difficult due to different states adopting different cess and mechanisms, and the merchant iron ore market being fairly fragmented.

"Both ferrous and nonferrous players, having mines in Odisha may be most impacted due to the higher cess rate there among the precedents we have thus far, the brokerage said.

Also Read | SC's mining tax timeline: From 1989 royalty ruling to 2024 retroactive dues

On the positive side, no impact is seen on APL Apollo and Gravita India as they are not dependent on any mineral resource that attracts cess directly. The impact on Jindal Stainless is also expected to be minimal as the company imports the bulk of its raw material requirement, the brokerage added.