NMDC, Tata Steel, and six other mining stocks tumble up to 6%. Here’s why

Shares of leading metal and mining companies such as NMDC, Tata Steel, MOIL, MMTC, Hindustan Zinc, Vedanta, Coal India and SAIL experienced a significant decline of up to 6% in today’s trading session. This sharp drop followed the Supreme Court's recent ruling, which allows states to seek refunds of mineral royalties from the Center and mining firms, retroactively applicable from April 1, 2005.

On Wednesday, the Supreme Court rejected the Center’s plea for the prospective effect of its July 25 verdict, which upheld the states' authority to levy taxes on mineral rights and mineral-bearing land.

The Judgment

On July 25, the nine-judge Constitution bench, in an 8:1 majority verdict, held that states have the power to levy taxes on mines and mineral-bearing lands under the Constitution and ruled that the royalty payable on extracted minerals is not a tax.

In the majority judgment, CJI Chandrachud and seven other judges stated, "Royalty is not a tax. It is a contractual consideration paid by the mining lessee to the lessor for the enjoyment of mineral rights. The liability to pay royalty arises from the contractual conditions of the mining lease. Payments made to the government cannot be deemed a tax merely because the statute provides for their recovery as arrears."

The court also directed that the payment of dues by the center and mining companies to the mineral-rich states be spread over 12 years. The bench, however, directed the states to not impose a penalty of any kind on payment of dues.

States rich in mineral resources such as Chhattisgarh, Jharkhand, and Odisha often face economic difficulties, and tax revenue from minerals is essential for these states to support welfare and services, the court said.

Mint previously reported that this judgement could increase the financial burden on mining companies, potentially disrupting cash flow and leading to overlapping financial obligations.

Tata Steel Ltd had said it would explore legal options if the court’s 25 July judgement is applied retrospectively and imposes excessive demands.

Tata Steel has noted contingent liabilities of ₹17,347 crore in its financial statements pending clarity on the matter, as disclosed in a regulatory filing on Friday.

“There’s no demand (raised against us), so it’s not necessary that we have to pay that amount. But we have to fight that now. So, there’ll be a lot of litigation,” T.V. Narendran, Tata Steel’s managing director, told Mint during a post-earnings call.

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