In a significant ruling, the Supreme Court of India has granted state governments the authority to levy additional taxes on mining activities, which is being viewed unfavourably by mining companies. This verdict, delivered by a 9-judge Constitution Bench headed by Chief Justice of India DY Chandrachud, clarifies that states can impose taxes on mines and mineral-bearing lands under constitutional provisions. The ruling has already impacted the stock market, with shares of several leading mining companies experiencing declines.
Read More: “Royalty is not Tax”, Supreme Court Affirms States’ Right to Levy Tax on Mining Rights
Stock Market Reaction
Following the judgement, shares of prominent mining companies showed a mixed response in trading. MOIL Ltd saw its shares close 1.4% lower, Hindustan Zinc fell by 4.1%, and NMDC Ltd decreased by 1.09% on the NSE. The market’s reaction underscores investor concerns about the financial implications of additional state-imposed levies on mining operations.
Impact on the Mining Industry
The verdict is expected to have significant financial implications for mining companies operating across India. With state governments now empowered to impose additional taxes on mining activities, the operational costs for these companies are likely to rise. This development could potentially affect their profitability and investment strategies, necessitating a reevaluation of their financial planning and operations.
Judicial Clarification on Taxation Powers
The Supreme Court’s decision comes after deliberations on petitions stemming from a conflict that began in 1989. The case, India Cement Ltd versus the State of Tamil Nadu, had previously determined that royalty payments were a form of ‘tax’ under the Mines Act, and that states lacked the legislative competence to impose cesses on such royalties. However, the current ruling by the Constitution Bench clarifies that the Mines and Minerals (Development and Regulation) Act of 1957 does not restrict states from taxing minerals, thereby overturning the earlier interpretation.
Chief Justice Chandrachud, who authored the majority judgement, emphasised that the ‘royalty’ paid to the central government is not a tax, thus allowing states to impose their levies. The majority decision, supported by eight of the nine judges, reinforces the states’ fiscal autonomy in the mining sector. Justice BV Nagarathna provided the lone dissenting opinion, disagreeing with the majority’s interpretation.
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