Supreme Court Issues Notice On Plea Challenging 18% GST On Mining Operations

The Petitioners are also seeking stay of the impugned circular of October 6 and directions to the effect that GST cannot be levied on mining royalty.

The Notifications and circulars under question are Notification dated 28.06.2017 issued by the Union of India notifying the rate of central tax on intra-state supply of services, Notification dated 29.06.2017 pertaining to intra-state supply of services issued by the state of Madhya Pradesh, Notification pertaining to intra-state supply of services issued by the state of UP and their respective amendments and Circular dated 06.10.2021 issued by the Ministry of Finance, Department of Revenue (Tax Research Unit) giving clarification regarding applicable GST rates.

It is urged that the Petitioners have been paying GST on mining royalty which is paid by them to the state government in accordance with the respective mining lease deeds.

It is submitted that this issue is pending before the Supreme Court in a batch of matters with lead matter titled Udaipur Chambers of Commerce and Industry v. Union of India SLP(Civil) No. 37326 of 2017 vide Order dated 11.01.2018 wherein stay has been granted of payment of service tax on mining royalty until further orders and similarly in various tagged matters, stay has been granted to mining companies for payment of service tax on mining royalty.

An extract from the petition reads :

It is submitted that under reverse charge, business houses have to pay service tax on the amount of mining royalty paid to the government. All the mining companies engaged in mining are required to pay huge royalties (which itself is a tax) to the government for running quarrying operations despite the fact that royalty is the price of winning minerals from the land and represents the State's share in such minerals and there is no element of provision of any service by the State in this respect which is why levy of GST is clearly ultra vires the Act.

The Petitioners, while challenging the said Notifications and circulars as stated in the preceding paragraphs, seek issuance of a writ in the nature of Certiorari or any other appropriate writ or order or direction quashing the said notifications and circulars to the effect that no GST can be levied on Royalty/Dead rent paid by a mining lease holder who has been granted mining lease by the State, and declare that Goods and Services tax on Royalty/ Dead rent payable under a mineral concession granted by the State is illegal, unjust, unconstitutional and without any authority of law. In addition to the same, the Petitioners are seeking, through the present Petition, refund of the entire GST amount paid by the Petitioners on the amount of royalty paid for mining to the Government.

"It is worthwhile to mention that a Seven-judges bench of the Hon'ble Supreme Court in the case of India Cements and Ors. vs. State of Tamil Nadu and Ors. (1990) 1 SCC 12 has already held that mining royalty is a tax. The only contention of the Petitioners is that there cannot be an imposition of tax on tax, mining royalty here being already a tax regularly paid by the Petitioners. Furthermore, the question of whether mining royalty is a tax or not is pending before a Bench of nine judges of the Hon'ble Supreme Court in the case of Mineral Area Development Authority & Ors. vs. Steel Authority of India & Ors. (2011) 4 SCC 450. Mining Royalty is a tax. Service tax cannot be paid on another tax", it is advanced.

Furthermore, it is submitted that rendering of a 'service' and existence of a service provider and service recipient relationship between two parties is a sine qua non for payment of service tax. No such relationship however exists between the Petitioners and the State in the present case. It is further submitted that a number of government notifications also reiterate this position that a compulsory levy is in the nature of a tax and service tax cannot be further imposed on such payments.

The Petitioners, through the present Petition, are seeking refund of full amount paid by the Petitioners towards GST on dead rent/ royalty to the State Government and quashing of Notifications and circulars which have led to levy of GST on mining royalty and further, quash any and every following or pursuant demand Notice or show cause notice on behalf of the State Government for payment of GST on mining royalty under reverse charge mechanism.

The Writ Petitions were drawn by Ms. Shriya Gilhotra, Advocate and filed through M/S. Chambers of Kartik Seth, AOR.