Mining body seeks legislative fix as SC ruling may create Rs 2-lakh-cr royalty backlog

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A top miners' body has sought help from the Centre after the Supreme Court ruled that states can collect dues on royalty and taxes from April 1, 2005, which may push the outstanding dues well over Rs 1.5-2 lakh crore.

The Federation of Mineral Industries (FIMI) warned that the August 14 order of the apex court, setting a cut-off date, would force the companies to clear their dues accumulated from April 2005. "Considering the severity of the issue and to have stable tax regime for bolstering the growth of the mining sector, we feel that the Union government should take necessary legislative, mitigative measures on an urgent basis," said BK Bhatia, additional secretary general of FIMI. The miners association counts leading players such as Tata Steel, Jindal Steel and Power, Hindustan Zinc and Vedanta as its members.

"The Indian mining sector is already saddled with highest taxation in the world and considered as a penal industry. As such the judgement of the Supreme Court of July 25, 2024 has given unbridled powers to states for imposing various taxes and levies. Now this order of August 14 mandating collecting dues retrospectively with effect from April 1, 2005 will give further jolt to the Indian mining industry as arrears may work out to the tune of more than Rs 1.5 to 2 lakh crore and the mines in the states like Odisha and Jharkhand would be most affected," Bhatia added.

The companies which will be liable to the backdated mineral taxes and royalties include Tata Steel, National Mineral Development Corp (NMDC), Jindal Steel and Power, Vedanta Ltd, Hindustan Zinc, Coal India, and Steel Authority of India (SAIL). Tata Steel, which operates 10 mines in Odisha, has set aside over Rs 17,000 crore in contingent liability in its financial statements, released on July 31.

"It's not just a steel industry issue, I think the bigger issue is coal, because it will have a huge impact on the power sector and on power prices if each coal-producing state imposes its own taxes. It will have a cascading effect... I think the need to amend the MMDRA is clear to the government," Tata Steel Managing Director Narendran had  told Moneycontrol in an exclusive interview on August 1.

Industry participants are also projecting a possible impact on cement companies too, such as India Cements and Ramco Cements. "This is bound to have a crippling impact not only on the mining industry but on the entire value chain and will lead to unprecedented inflationary rise in all the end-products," the FIMI chief said.

The origin of the mining tax case dates back to 1963 when India Cements challenged the Tamil Nadu government's decision to levy a cess on the royalty paid for extracting limestone and kankar. Initially, a single judge upheld the cess as a tax on land, but the company appealed the decision in the Supreme Court.

In 1989, the Supreme Court ruled that "royalty is a tax" under the Mines Act, and since a cess on royalty was considered a tax on royalty, it was beyond the state's legislative competence because the Union's Mines Act covered the field.