The Supreme Court’s decision on the mining royalty case is expected to severely impact the Indian mining sector, with financial repercussions potentially reaching between Rs 1.5 trillion and Rs 2 trillion, PTI quoted industry representatives as saying.
In its ruling on Wednesday, the Supreme Court affirmed its July 25 verdict that states have the authority to impose taxes on mineral rights and land containing minerals and permitted them to claim royalty payments dating back to April 1, 2005.
A senior official from the Ministry of Mines indicate the ruling will have significant financial consequences for companies involved in mining, steel, power, and coal sectors. The official noted, “Investments by companies in these sectors are likely to suffer as well.”
Judgement will strain the mining sector
The Federation of Indian Mineral Industries (FIMI) expressed concern, stating that India’s mining industry already faces the highest level of taxation globally. According to BK Bhatia, additional secretary general of FIMI, the Supreme Court’s judgement on July 25, 2024, has granted states extensive powers to impose various taxes and levies.
Bhatia further pointed out that the August 14 order, which requires the collection of dues retroactively from April 1, 2005, will further strain the mining sector, particularly in states like Odisha and Jharkhand, where the arrears could amount to over Rs 1.5 trillion to Rs 2 trillion.
The July 25 ruling, delivered by an 8:1 majority, stated that the legislative power to tax mineral rights rests with the states, overturning a 1989 judgement that limited this power to the central government.
Crippling effect on supply chain
Bhatia also warned that this latest Supreme Court decision is likely to have a crippling effect on not just the mining industry but the entire supply chain, leading to significant inflation in the prices of end products. He said the central government should take immediate legislative steps to stabilise the tax regime and support the growth of the mining sector.
Mayur Karmarkar, managing director of the International Copper Association India, voiced similar concerns, stating that these judicial changes disrupt the industry’s business models.
What did the Supreme Court rule?
On August 14, a nine-judge Bench of the Supreme Court stated, “States can impose and renew tax demands, but these demands should not apply to transactions made before April 1, 2005.”
The ruling was delivered by a Bench led by Chief Justice of India (CJI) DY Chandrachud, with Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih.
Additionally, the Court directed that payments for tax demands should be spread out in instalments over 12 years, starting from April 1, 2026.
The Court also ruled that any interest or penalties imposed before July 25, 2024, should be waived. Justice Nagarathna did not sign the judgement as she had dissented from the original July 25 ruling.
What is retrospective taxation?
Retrospective taxation refers to a tax applied to transactions or events that occurred before the law imposing the tax was enacted. This type of taxation allows governments to enforce tax obligations retroactively, often to address the loopholes or differences in previous tax laws, to bring the taxation up to current standards.
A retrospective tax can involve introducing a new tax or an additional charge on past transactions. The main aim is to rectify disparities between earlier and current tax policies, ensuring that all entities contribute fairly under the present tax framework.
(With inputs from PTI)
First Published: Aug 14 2024 | 4:37 PM IST
