Supreme Court Ruling on Mining Royalties Slashes Profits for Big Players

Moody's Ratings has flagged the Supreme Court’s ruling on royalties and taxes as financially detrimental for mining firms like Tata Steel, UltraTech Cement, and Vedanta Resources Ltd. The court's decision allows states to claim dues retroactively, impacting profits and cash flows. Companies may need to revisit their capital spending due to new tax obligations.

Moody's Ratings has identified the Supreme Court's ruling on royalties and taxes as financially detrimental for mining companies including Tata Steel, UltraTech Cement, and Vedanta Resources Ltd. The ruling, delivered on August 14, allows mineral-rich states to claim dues retroactively from April 1, 2005, over a staggered period of 12 years.

According to Moody's, these retrospective taxes are credit negative for Indian companies such as Tata Steel Ltd (Baa3 stable), UltraTech Cement Ltd (Baa3 stable), JSW Steel Ltd (Ba1 stable), and Vedanta Resources Ltd (Caa3 negative) due to the impact on cash flow. Ongoing state tax obligations will also hit profitability.

While the financial burden is mitigated by installment payments over 12 years starting April 1, 2026, the increased costs may compel firms to pass the expenses onto customers, thereby affecting their profitability. During a July 31 hearing, both the Centre and mining companies opposed state demands for royalty refunds dating back to 1989, undoing a previous Supreme Court ruling that centralised royalty collection.

(With inputs from agencies.)