Mint Primer | Mining minerals: Could cement & steel get dearer?

What has the Supreme Court said?

A longstanding jurisdictional issue between the central government and the states over taxing minerals was resolved on 25 July when the apex court upheld the rights of states to levy tax on land-bearing minerals. The nine-judge constitutional bench in an 8:1 verdict held that states have the power to tax minerals. The apex court clarified that royalties that are paid to the central government do not meet the criteria of taxes under current laws. It defined royalty, calculated based on the quantity of minerals extracted, as compensation that is paid for exclusive use of mineral resources.

What was the position earlier?

Royalties were considered as taxes under the Mines and Minerals (Development and Regulation) Act or MMDR Act and states were told that they had no power to tax minerals. This was based on a judgment delivered earlier by a seven-judge bench of the Supreme Court in the India Cements vs Tamil Nadu case way back in 1989. More than 80 petitions have been filed over the years challenging the interpretation of royalties under the MMDR Act. The apex court in February this year began hearing the case to look into the various interpretations of the issue and decide who is the rightful authority to impose tax on minerals.

What does this judgment mean for states?

A lot, especially for states with rich mineral reserves. With the power to tax minerals, an all-new revenue stream has just opened for them to raise resources. While it will be difficult to put a value now, as royalties have risen significantly over the years from Odisha, Jharkhand, Chhattisgarh and Maharashtra among others, the potential to raise revenues is high.

Also Read: Supreme Court upholds states’ power to tax minerals

How will it impact the mining sector?

The financial burden on mining firms will increase. Their cash outflow will rise as they will now have to pay more levies. The industry is worried about possible double taxation from overlapping financial obligations. The compliance burden will rise as the new taxes will require more detailed accounting to meet the different requirements of both the central and state governments. The industry fears that this tax will become yet another instrument in the hands of governments to extract benefits from the industry.

Also Read: ‘Royalty not a tax,’ says Supreme Court on states’ power on mineral rights

Where does it leave the consumers?

Consumers will have to bear the cost as miners pass on the higher cost they incur due to the tax to their customers. This will mean that the cost of end-products such as cement, steel, aluminium and other mineral-based commodities could rise. A lot will also depend on the Supreme Court’s decision, expected on 31 July, on royalties which the Central government has earned. The industry is hoping for a reduction in royalty payments as the Central government increased it after states were not allowed to tax minerals.