Levy Of GST On Mining Royalty And Allied Charges: Jharkhand High Court Grants Interim Protection

More than 10 writ petitions were filed challenging the show cause notices issued by the department directing them to furnish data relating to the payment of royalty against licencing services for the right to use minerals, including exploration and evaluation, for different periods concerning the levy of GST on royalty. In some of the writ petitions, petitioners have sought declaration that royalty is not a payment in respect of a taxable service and, as such, there was no liability to pay GST on royalty and District Mineral Fund (DMF).

The petitioners pleaded for interim protection from the levy of GST on royalty and DMF or continuation of the interim protection granted earlier in some of the writ petitions.

The petitioners contended that the royalty is in the nature of a "tax" or profit pendre and cannot be termed as a consideration towards the supply of services in terms of Section 15 of the GST Act.

The petitioner submitted that the levy of GST on royalty/DMF is akin to the levy of service tax under the Finance Act, 1994, since, by virtue of the 101st constitution amendment, various indirect taxes prevalent in the country, such as VAT, Central Excise Tax, Service Tax, Entry Tax, etc., have been subsumed into one tax in the nature of Goods and Services Tax. Article 366 (12A) of the Constitution of India defines "Goods and Services Tax" as a tax on the supply of goods and services or both.

The petitioners urged that the nature of the levy under the service tax under the Finance Act, 1994 imposed by the respondents be akin to GST. On the basis of a mistaken notion of the supply of services by way of the leasing of mineral rights to the petitioners by the state, GST was sought to be imposed on royalty.

The petitioners submitted that they were suffering under a constant threat of recovery of GST on royalty/DMF and if interim protection was not granted, they would run the risk of paying interest on any unpaid amount of GST on such royalty/DMF, which may entail a huge unnecessary burden on the petitioners.

The department submitted a two-fold argument stating that ​​royalty also amounts to a consideration on which GST can be levied and that there is no bar on the imposition of GST even if royalty is considered as a tax.

The court observed that the petitioners had made out a case for interim protection. As such, there shall be a stay on the recovery of GST for the grant of mining lease/royalty/DMF from the petitioners till further orders. However, the department is not restrained from conducting and completing the assessment proceedings.

Case Title: M/s Mandhan Minerals Corporation Versus Union of India

Case No: W.P (T) No. 432 of 2021

Citation: 2022 LiveLaw (Jha) 40

Counsel For Petitioner: Sr. Advocate Biren Poddar

Counsel For Respondent: Advocate Amit Kumar

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