India’s Supreme Court has affirmed that Indian states have the authority to levy taxes on mining activities retroactively dating back to 2005, a decision that carries significant implications for the mining and steel industries, notes Kallanish.

The ruling clarifies that Indian states can impose taxes and royalties on past mining operations, potentially creating substantial financial liabilities for miners. The landmark judgment is likely to have broad repercussions, as mining companies may now face significant back payments, leading to increased operational costs and financial pressure.

These additional costs are expected to be passed on to steel producers, potentially driving up raw materials prices and contributing to market volatility.

Miners and steelmakers have expressed widespread concern to Kallanish about the unexpected financial burden imposed by this judgment.

The head of raw materials at a leading Indian steel company says: “This decision is a huge blow for us as there is no cap on the tax that could be levied by the state government. It could be 100 or 1,000 rupees … we don’t know. We can’t pass such a huge burden onto customers. It will ultimately fall on us, and our margins will be severely impacted.”

A director at an iron ore mining company adds: “We may experience squeezed profit margins, which could affect our investment capacity and potentially disrupt supply chains, impacting the availability and pricing of key raw materials used in steel production.”

“While our country is making efforts to reduce imports of steel raw materials like coking coal, this decision will hugely add to the financial burden and may motivate mills to continue or even increase their imports,” remarks a steel mill’s purchasing head.

Conversely, a Chhattisgarh state government representative expressed satisfaction with the decision, noting: “This decision is expected to boost the revenue of developing states like ours and enhance our financial health, particularly since our state economy is largely dependent on mineral resources.”

The Supreme Court ruling ultimately highlights the need for mining companies to adapt to complex regulations and adjust their financial strategies. Both the mining and steel industries may need to re-evaluate their cost structures and operations to manage the impact of retrospective taxation.