Mining royalty case: Setback for mining operators as SC rules states can impose levies retrospectively

The statement came as Chief Justice DY Chandrachud was delivering the verdict of the nine-judge Constitution bench on whether its July 25 verdict upholding the power of states to levy taxes on mineral rights and mineral-producing lands will have retrospective or prospective effect.

It further directed that the payments should be staggered over 12 years. The Supreme Court also ordered states not to impose penalties or taxes on past claims. “The timing of payment of the tax claim shall be staggered in installments over a period of 12 years beginning from April 1, 2026,” it said.

Setback for mining operations, bonanza for states

Following the verdict, share prices of Hindustan Zinc, NMDC, Coal India and SAIL fell 3.2%, 3.6%, 1.9% and 1.5% respectively on BSE Sensex. Tata Steel fell 3.6% to Rs 143.90 apiece. Meanwhile, benchmark indices were trading with a positive bias.

States like Jharkhand and Odisha had sought retrospective implementation of the Supreme Court ruling, while Madhya Pradesh and Rajasthan supported the Centre’s demand for prospective implementation of the verdict.

The Chief Justice had noted that states need revenue and had earlier said: “Prima facie, this is not a question of future nullification. We cannot ignore the fact that in some states the law imposing tax was nullified (post-1989 judgment). We have to see what kind of conditions can be imposed if we make it retrospective. Of course, this is subject to debate among other members of the court.”

Past judgment

In an 8-1 majority verdict on July 25, the court had held that the legislative power to tax mineral rights lies with the states. The verdict had overturned a 1989 judgment, which held that only the Centre has the power to impose mineral royalties and mineral lands.

Some mineral-rich states ruled by the opposition are now seeking refund of royalties collected by the Centre and taxes from the mining companies since the 1989 verdict.

The Centre told a nine-judge Constitution bench headed by Chief Justice DY Chandrachud that it was opposing the states’ demand for refund of royalties collected on mines and minerals since 1989, saying it will affect citizens and the Power supplies will have to empty their coffers by Rs 70,000 crore as per initial estimates.

On July 31, the bench also comprising Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih had reserved its verdict on the matter.

Solicitor General Tushar Mehta, appearing for the Centre, had told the court that making the July 25 verdict retroactive will have cascading effects as companies will shift the financial burden to citizens.

He said the 1989 verdict stood for 35 years and the financial impact of the July 25 ruling will fall on companies that carry out mining operations, which will be different for each state.

“A preliminary estimate of the potential financial impact of the judgment due to past state liens that may become due (in the form of additional state tax liens, interest, and penalties) only Public Sector Units “The value of (public sector companies) engaged in mining and mineral-dependent production activities (such as electricity generation) is worth Rs 70,000 crore,” he said.

Senior advocate Rakesh Dwivedi, appearing for Jharkhand, submitted that certain conditions could be imposed, such as that the payment of the refund amount can be staggered and it should be limited to lands containing minerals.

Many companies involved in mining activities also supported the Centre’s view on royalty reimbursement to mineral-producing states.