Supreme Court Ruling on Royalties Hits Mining Giants

Moody's Ratings has deemed the Supreme Court ruling on royalties and taxes credit negative for mining firms like Tata Steel, UltraTech Cement, and Vedanta Resources. The ruling permits states to collect dues from 2005, affecting companies' cash flows and profitability. Payments will span 12 years starting April 2026.

Moody's Ratings has expressed concern over the Supreme Court's recent decision on royalties and taxes, dubbing it credit negative for mining giants such as Tata Steel, UltraTech Cement, and Vedanta Resources Ltd. The verdict is set to dent these companies' cash flows and profitability.

In a landmark victory for mineral-rich states, the Supreme Court ruled on August 14 that states can claim dues from as far back as April 1, 2005, concerning royalty and taxes on mineral rights and mineral-bearing land from the Centre, to be paid over a staggered period of 12 years.

Moody's Ratings stated, ''The retrospective taxes are credit negative for companies with mining operations in India because the instalment payments will dent their cash flows. These companies will have to absorb state taxes going forward, impacting profitability. However, the effect might be mitigated as owed taxes will be paid in installments over 12 years beginning April 1, 2026.'' The ruling could prompt the companies to recalibrate their capital spending plans.

(With inputs from agencies.)