The Federation of Indian Mineral Industries (FIMI), an industry lobby, said arrears could be in the range of ₹1.5-2 trillion.

“This is bound to have a crippling impact not only on the mining industry but on the entire value chain, leading to an unprecedented inflationary rise in all end products,” said B.K. Bhatia, FIMI’s additional secretary general. He urged the Union government to “urgently take necessary legislative measures to mitigate the situation."

Solicitor General of India Tushar Mehta had earlier argued in the Supreme Court that if applied retrospectively, public sector companies alone could face demands to the tune of ₹70,000-80,000 crore. He said that one major PSU could face demands amounting to three times its net worth. He did not name the company.

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Listed companies affected by the judgement have seen 2-3% stock price erosion already, said Niladri B, partner, Grant Thornton Bharat.

“Level 3 impact will be on downstream sectors, not all of whom can pass on costs. The overall hit on the economy may be more than what anyone bargained for,” he said.

The BSE Metal Index lost 1.51% on Wednesday, on a day the benchmark Sensex rose 0.19%. Top Sensex constituent losers were UltraTech Cement (-2.37%), JSW Steel (-1.93%) and Tata Steel (-1.81%). NMDC Ltd (-6.08%), Coal India (-3.18%), SAIL (-2.26%) and Vedanta (-0.63%) were also in the red.

What’s next?

Companies should engage in active dialogue with the state governments concerned to negotiate payment terms for the 12-year staggered period, ensuring that obligations are met without jeopardizing their financial strength and stability, said S.R. Patnaik, partner (head - taxation), Cyril Amarchand Mangaldas.

The affected miners may undertake a thorough review of their contracts with customers to ascertain whether such liability can be recovered from them, he said. “Lastly, mining companies may pursue legal recourse for ambiguities related to the payment terms, which could also be a prudent step.”

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While FIMI has urged the Centre to find a legislative recourse, Bajaj said that it may not be that simple for the government to make the situation go away. This is due to one observation in the Supreme Court’s ruling that stated that the states’ right to tax land includes any minerals found underneath it.

Entry 50 of the State List mentions the right of the states to tax mineral rights subject to any limitations imposed by the parliament. Entry 49 stipulates the states’ right to tax land and buildings. But unlike entry 50, it is not subject to or limited by any law by the parliament, Bajaj said.

“The Supreme Court ruled that taxation on land includes any minerals found underneath it and states can use this to impose further levies,” he said.

The State List contains the subjects on which states have exclusive legislative power.

The Supreme Court has left it up to the states’ discretion to levy retrospective duties. Experts called for states to show prudence when raising demands.

“States should show wisdom and not gut the goose that lays golden eggs,” Niladri said.

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