Rajasthan High Court Dismisses Writ Petitions Challenging Levy Of GST On Royalty

Noting that the Coordinate Benches of the Rajasthan High Court, in several cases, have dismissed the writ petitions challenging the levy of GST on royalty, the Division Bench of Acting Chief Justice Manindra Mohan Shrivastava and Justice Shubha Mehta ruled that it was bound by the final orders passed by the Coordinate Benches.

The Court observed that the orders passed by the Rajasthan High Court, repelling the challenge against levy of GST on royalty, have been assailed by filing an SLP before the Supreme Court, which is yet to be decided by the Apex Court.

The petitioners filed writ petitions before the Rajasthan High Court, seeking quashing of notices and proceedings initiated with respect to levy of goods and service tax (GST) on mining royalty. The petitioners, including Sudershan Lal Gupta, sought a declaration that Section 9 and Section 15 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017) or the Rajasthan Goods and Services Tax Act, 2017 (RGST Act, 2017), which levied GST on reverse charge basis on royalty of mining extraction, are unconstitutional.

Disputing the maintainability of the writ petitions, the respondent- the Union of India, argued that since the issue regarding the legality and validity of imposition of GST/ service tax on royalty has been decided by different Division Benches of the Rajasthan High Court, including in the case of Udaipur Chambers of Commerce and Industry & Ors. versus The Union of India & Anr. (2017), therefore, the writ petitions must be rejected.

To this, the petitioners brought to the notice of the Court that the order passed by the Rajasthan High Court in the case of Udaipur Chambers of Commerce and Industry (2017) has been challenged by filing an SLP before the Supreme Court, in which the Apex Court had passed an order staying the recovery of service tax on royalties.

Further, the petitioners relied upon the interim order passed by Division Bench of the Rajasthan High Court in the case of Shree Basant Bhandar INT Udyog versus Union of India & Ors. (W.P. (C) No. 5678/2022), where the High Court had stayed the recovery of GST on royalty.

The Union of India argued that though the SLPs filed against the orders of the Rajasthan High Court, including against the decision rendered in Udaipur Chambers of Commerce and Industry (2017), were pending consideration before the Supreme Court, none of the orders of the High Court had been set aside by the Supreme Court.

The Court observed that in the case of Udaipur Chambers of Commerce and Industry (2017), a batch of writ petitions were filed before the Division Bench of the Rajasthan High Court, challenging the levy of service tax on royalty, which were dismissed by the High Court. Relying on the decision rendered in Udaipur Chambers of Commerce and Industry (2017), the High Court in M/s Shivalik Silica versus Union of India & Ors. (2021), dismissed the writ petition challenging the levy of service tax on royalty. Further, in Rajasthan Small Mines (Cheja Patthar) Lease Holders Association versus the State of Rajasthan & Ors. (2022), the Rajasthan High Court, while relying upon the decision in M/s Shivalik Silica (2021), had dismissed the challenge against levy of GST on royalty.

Noting that the Rajasthan High Court has taken a consistent view by dismissing all the writ petitions challenging the levy of GST on royalty, the Court held that it is bound by the final orders passed by the Coordinate Benches of the Rajasthan High Court, including the decisions rendered in Udaipur Chambers of Commerce and Industry (2017) and in Rajasthan Small Mines (Cheja Patthar) Lease Holders Association (2022).

While dealing with the reliance placed by the petitioners upon the interim order passed by the Rajasthan High Court in Shree Basant Bhandar INT Udyog versus Union of India & Ors., the Court held that it must follow the final verdict of the Coordinate Bench of the High Court over an interim order.

"Though the orders passed by this Court in the cases referred to above repelling challenge to leviability of GST on royalty have been assailed by filing SLPs before the Hon'ble Supreme Court, learned counsel appearing on behalf of all the parties do not dispute that the issue has not been decided by the Hon'ble Supreme Court and learned counsel for the parties have also brought to our notice that the issue as to whether royalty is in the nature of tax has been referred by the Hon'ble Supreme Court for consideration by the Bench of nine-Judge in the case of Mineral Area Development Authority etc. & Others Vs. M/s. Steel Authority of India and Others (2011) 4 SCC 450.", the Bench said.

Thus, relying on the decisions passed by the Coordinate Benches of the Rajasthan High Court, the Court dismissed the writ petitions.

Case Title: Sudershan Lal Gupta & Ors. versus Union of India & Ors.

Citation: 2022 LiveLaw (Raj) 238 

Dated: 27.09.2022 (Rajasthan High Court)

Counsel for the Petitioners: Mr. Vedant Agarwal Advocate. Mr. Anuroop Singhi Advocate with Mr. N.S. Bhati Advocate. Mr. Jatin Harjai Advocate. Mr. Mohit Kumar Soni Advocate. Mr. Abhay Singla Advocate

Counsel for the Respondents: Mr. R.D. Rastogi Additional Solicitor General with Mr. Devesh Yadav Advocate. Major R.P. Singh Additional Advocate General with Mr. Jaivarshan Singh Shekhawat Advocate. Mr. Punit Singhvi Advocate with Mr. Ayush Singh Advocate. Mr. Kinshuk Jain Advocate.

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