The Rajasthan High Court has granted substantial relief in a dispute concerning the levy of Goods and Services Tax (GST) on mining royalty, setting aside multiple assessment orders and remanding the matter to the tax authorities for fresh consideration in accordance with the Supreme Court’s landmark judgment in Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr.
The bench of Justice Pushpendra Singh Bhati and Justice Praveer Bhatnagar made it clear that the authorities would have to pass appropriate orders strictly in accordance with law. This means that the department will have to reconsider the tax controversy while taking the binding Supreme Court ruling into account rather than proceeding on the basis of the earlier assessment orders.
The central issue before the High Court concerned the legal treatment of mining royalty and its implications for taxation. The parties jointly informed the High Court that the issue had already been adjudicated by the Supreme Court in Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr., arising out of Civil Appeal Nos. 4056-4064 of 1999.
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The Rajasthan High Court specifically recorded that the Supreme Court had laid down the governing principles of law in the MADA case.
The Supreme Court’s nine-judge Constitution Bench delivered its judgment in the MADA matter on July 25, 2024. The judgment is reported as 2024 INSC 554. The ruling addressed the constitutional character of royalty payable in respect of mining rights and held, among other things, that royalty is not a tax.
This distinction has significant consequences in disputes where authorities seek to treat royalty as a taxable levy. The Supreme Court’s ruling has consequently become an important reference point in subsequent litigation involving mining royalty.
Applying the principles laid down by the Supreme Court, the Rajasthan High Court held that the assessment orders could not be sustained without reconsideration in light of the binding legal position.
The Bench consequently quashed and set aside four orders — assessment orders dated May 27, 2022, May 23, 2022, May 23, 2022, and another order dated March 27, 2023. The Court thereafter remanded the matter to the respondents with a direction to re-examine the issue afresh in light of the directions contained in the MADA judgment.
An important procedural aspect of the High Court’s order is its direction permitting both sides to take their respective stands concerning the show cause notice.
The Court specifically observed that it would remain open to both parties to advance their position regarding the show cause notice during the fresh proceedings.
This aspect is significant because the remand is not merely a mechanical exercise. The authorities are required to reconsider the matter afresh and issue appropriate orders after applying the Supreme Court’s binding principles to the facts and legal issues involved.
The immediate effect of the Rajasthan High Court’s order is that the assessment orders challenged before it no longer survive. The proceedings have instead been sent back to the tax authorities for a fresh determination.
The writ petition was accordingly partly allowed, while all pending applications, if any, were disposed of.
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