India: Karnataka moves to levy mineral taxes, citing SC's 25 Jul'24 order

• Taxes for non-auctioned mines will be imposed at a rate equivalent to three times the royalty
  
  
• Taxes to be levied prospectively & retrospectively from 1 Apr'05
  
  

In a move that has brought uncertainty to the mining industry, the Government of Karnataka has decided to levy a tax of INR 1/tonne (t) on mineral-bearing areas on auctioned leases. For iron ore-producing regions specifically, an additional tax of INR 100/t will be imposed. Additionally, for non-auctioned iron ore mines, the former tax is far steeper, at three times of royalty. The rates for other commodities vary.

Iron ore miners will continue to pay an additional levy of 10% of their sale value, which goes towards the special purpose vehicle (SPV) set up, under the SC order.

The "Karnataka (Mineral Rights and Mineral Bearing Land) Tax Act, 2024", as the bill is titled, seeks to levy these new taxes prospectively, as well as retrospectively, from 1 April 2005. The bill, expected to be passed by the state assembly very soon, will have huge implications for the Ministry of Steel's NMDC, steelmaker JSW, Vedanta, SMIORE, and the state's own Karnataka State Mineral Corporation, among others. Notably, Karnataka stands as India's 3rd largest iron ore-producing state, with volumes at 39.5 mnt in CY'23.

The Congress Government's proposed act banks on the 25 July 2024 judgement of the Supreme Court's constitution bench. This 8:1 majority judgement recognised the legislative right of state governments to levy taxes (aside from royalty, which is decided by the Centre), on both mining rights and mineral-bearing lands. A month later, on 14 August 2024, the same bench, led by former CJI Justice DY Chandrachud, clarified that the judgement would apply retrospectively from 1 April 2005. It waived interest and penalties on dues before 25 July 2024 and allowed miners to pay in instalments, starting from 1 April 2026. However, that did little to blunt the impact of its orders. The Centre's review petition was also dismissed, leaving the threat of a bill like this one, particularly from states ruled by non-BJP-led governments, a significant concern for the mining industry.