Mining stocks trade mixed after Supreme Court allows state governments to levy mineral cess

Shares of the mining companies were trading mixed after the Supreme Court gave state governments permission to levy mineral cess. Today, (July 25), a majority decision by the Supreme Court's nine-judge constitution bench declared that governments are authorised to impose taxes on land that contains minerals. The highest court also declared that royalties paid by miner to the Center are contractual payments rather than taxes.

Whether royalties on mining leases should be regarded as taxes and whether the States had the authority to impose taxes or royalties on mineral rights following the passage of the Mines and Minerals (Development and Regulation) Act 1957 by the Parliament were the main issues that the court looked at.

“Royalty is not within the nature of tax as it is a contractual consideration paid by the lesssee under the mining lease. Both royalty and dead rent do not fulfil the characteristics of tax,” the Court said.

The Court affirmed the ability of governments to impose taxes on lands holding minerals by an 8:1 majority, even though it concluded that the 1989 finding of the seven-judge Constitution bench, which declared that royalty on minerals constitutes a tax, is wrong.

The nine judges on the panel that handed down the decision were led by Chief Justice DY Chandrachud and included Justices Hrishikesh Roy, Abhay Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma, and AG Masih.

Shares of Orissa Minerals Development Company, Gujarat Mineral Development Corporation, Vedanta, Hindustan Zinc, Hindalco Industries, were down 1% to 4%. On the other side Coal India, MOIL, KIOCL were up 0.5% to 2%.

The metals and mining stocks have seen corrections today, mainly due to selling seen in base metals in the international markets. Traders should be cautious for the time being and avoid aggressive longs here until we see any reversal signs, advised Ruchit Jain, Lead Research Analyst at 5paisa.

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