Blog No. 30: GST on Royalty paid for Mining Lease – Stay on operation of show cause notice(s)

𝐓𝐡𝐞 𝐋𝐚𝐰 𝐨𝐧 ‘𝐑𝐨𝐲𝐚𝐥𝐭𝐲’

1. The royalties in respect of mining leases are specified in Section 9 of Mining and Minerals (Regulation & Development) Act, 1957.
2. State Governments have also promulgated legislations with respect to the levy.
3. This law hails its constitutional backing from:
   1. 𝐋𝐢𝐬𝐭 𝟏: 𝐔𝐧𝐢𝐨𝐧 𝐋𝐢𝐬𝐭: 54. Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest.
   2. 𝐋𝐢𝐬𝐭 𝟐: 𝐒𝐭𝐚𝐭𝐞 𝐋𝐢𝐬𝐭: 50. Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development.

𝐑𝐨𝐲𝐚𝐥𝐭𝐲 – 𝐖𝐡𝐞𝐭𝐡𝐞𝐫 𝐓𝐚𝐱 𝐨𝐫 𝐅𝐞𝐞? 𝐌𝐚𝐭𝐭𝐞𝐫 𝐩𝐞𝐧𝐝𝐢𝐧𝐠 𝐛𝐞𝐟𝐨𝐫𝐞 𝐒𝐮𝐩𝐫𝐞𝐦𝐞 𝐂𝐨𝐮𝐫𝐭 – 𝟗 𝐛𝐞𝐧𝐜𝐡

1. The consistent position upheld by judiciary is that – ‘Royalty is not a tax’. However, the embarrassment appears to be have been caused due to a decision of 7 member bench of SC in the case of India Cement (1990) 1 SCC 12 wherein it has been held to be a tax – a noting which has been argued to be a typo error.
2.  Accordingly, the matter has been referred before 9 member bench of SC, to decide the issue. Refer: Mineral Area Development Authority etc. vs Steel Authority of India, CA No. 4056-4064 of 1999.

𝐏𝐨𝐬𝐢𝐭𝐢𝐨𝐧 𝐮𝐧𝐝𝐞𝐫 𝐒𝐞𝐫𝐯𝐢𝐜𝐞𝐬 𝐓𝐚𝐱 𝐚𝐧𝐝 𝐆𝐒𝐓 𝐥𝐚𝐰

6. The Hon’ble Supreme Court in SLP (C) No. 37326 of 2017 and W.P. (C) No. 1076 of 2021 (Lakhwinder Singh) has passed an interim order staying payment of services tax and GST respectively.

𝐎𝐮𝐫 𝐑𝐞𝐦𝐚𝐫𝐤𝐬

7. The issue has now become a much litigated question of law.
8. ‘Royalty’ and ‘tax on Royalty’ are very long pending matters in the judicial system of India which should be settled. The controversy started from the very beginning and continuing under GST as well.

If GST is leviable on Royalty, then it should come under supply of goods as this is charge payable to the Government in respect of the ore or mineral excavated, consumed or removed from the mines. At present, various AARs have classified it as a service under HSN 9973 attracting the rate of tax equal to like goods. As it has been classified as a service by AARs, the payment of GST is being made under reverse charge mechanism.
10. Recently, Hon’ble AP High Court has stayed the operation of Show Cause Notice – Refer: W.P. No. 30248 of 2021. The assessee’s shall also plan way forward in their respective cases.