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India's metal and mining companies are bracing for a significant rise in operating costs as state governments gear up to impose additional mining taxes following a Supreme Court ruling. Fitch Ratings issued a note on Monday highlighting the potential financial strain these companies might face.

The Supreme Court's recent decision, delivered late last month, reaffirms the authority of state governments to levy taxes on mineral extraction. More significantly, the court allowed these taxes to be applied retrospectively, dating back to April 1, 2005. Payments are to be spread over 12 years, starting from April 1, 2026.

This ruling is the latest chapter in a prolonged legal battle between Indian states and the federal government regarding tax rights over mineral resources. The implications for the metal and mining sectors are profound. Fitch Ratings expressed concerns that these new levies could erode companies' EBITDA (Earnings before Interest, Tax, Depreciation, and Amortization) margins, posing a sustained financial risk.

In a comparative analysis, Fitch highlighted that Tata Steel is more vulnerable to these prospective taxes than JSW Steel. The rating agency noted that Tata Steel's low rating headroom makes it particularly susceptible to credit risks arising from the new tax regime, unlike JSW Steel, which appears to have a stronger buffer.

The ripple effects of this ruling extend beyond steel producers. Fitch emphasized that the metal and mining sectors, unlike other industries such as power and cement, have limited flexibility to pass on the increased costs to consumers due to their reliance on global market prices. This constraint could exacerbate the financial pressures on these companies.

The full impact of the court's decision is expected to unfold over the coming quarters. There is still uncertainty about whether individual states will intensify demands for past dues or introduce additional taxes. Last week, brokerage firm Macquarie flagged state-run Coal India and Tata Steel as likely to be the most affected by the retrospective tax levy among the metal and mining firms.

As the dust settles, the comparison between Tata Steel and JSW Steel will likely become a focal point in assessing how companies navigate this new fiscal landscape, with Tata Steel seemingly on shakier ground. The industry waits with bated breath to see how these developments will reshape the financial dynamics of India's metal and mining sectors.