Mining stocks close lower as SC uphold right of states to levy tax on minerals

Leading mining stocks traded mixed on Thursday, July 25, after the Supreme Court ruled that the states have the power to tax mining activities.

The 9-judge Constitution Bench of the apex court headed by Chief Justice of India DY Chandrachud upheld by an 8:1 majority that states in India can levy tax on mines and minerals-bearing lands under the Constitutional provisions. The court clarified that the ‘royalty’ paid by mining operators to the central government is not a tax.

The court said, according to a Live Law report, that the Mines and Minerals (Development and Regulation) Act 1957 does not limit the power of the states to tax minerals.

The verdict is being seen as an unfavourable development for mining companies as state governments can now charge additional levies on mining and minerals. Consequently, shares of some leading mining companies fell in trade after the judgement.

Shares of MOIL Ltd closed 1.4% lower, Hindustan Zinc fell 4.1%, while NMDC Ltd fell 1.09% on the NSE.

The Supreme Court verdict on Thursday came after hearing petitions related to a conflict that arose in 1989. The apex court had held in the case of India Cement Ltd versus the State of Tamil Nadu that royalty is a form of ‘tax’ under the Mines Act and that the imposition of cesses on such royalty was beyond the States’ legislative competence.

The Constitution Bench of the Supreme Court comprised CJI DY Chandrachud and Justices Hrishikesh Roy, AS Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma, and AG Masih.

CJI Chandrachud authored the majority judgment, while Justice BV Nagarathna gave the lone dissenting opinion.