The Patna High Court has upheld the levy of Goods and Service Tax (GST) On royalty paid for mining leases.
The bench of Justice Rajeev Ranjan Prasad and Justice Sourendra Pandey has observed that since the royalty is the consideration for the grant of the mining lease it can be used as a measure to levy tax on the transaction under the GST laws. The GST Council while recommending the rate schedule for services specifically recommended that all the residuary services would attract GST at the rate of 18%. The Appellate Authority on Advance Ruling has not committed any error taking a view with regard to the rate of tax, for the period 01.07.2017 to 31.12.2018, at the rate of 18%.
The petitioner is a company registered under the Companies Act, 1956 (BSCPL). It is engaged in taking settlement of the sand ghats in the auction held by the Department of Mines and Geology, Government of Bihar. The petitioner-company became the successful bidder for the sand ghats of the district of Patna, Bhojpur and Saran as one unit, Rohtas and Aurangabad as one unit, Jamui and Lakhisarai as one unit and other district as individual units for a period of five years.
At the time of conferment of the right upon the petitioner i.e. 21.12.2014, Bihar Value Added Tax Act, 2005 (Bihar VAT Act) was prevailing and according to the Sand Policy, the petitioner was liable to pay Value Added Tax (VAT) only at the rate of 5%. It is the case of the petitioner that till the promulgation of the Goods and Services Tax Law (GST), the petitioner was discharging its tax liability under the Bihar VAT Act.
The petitioner discharged its tax liability on the royalty paid to the Government under Reverse Charge Mechanism (RCM) by paying GST at the rate of 5% under the heading 9973, group 99733 and tariff code 99337 “licensing services for the right to use minerals including its exploration and evaluation” which attracted the same rate of GST as on supply of like goods involving transfer of title in goods.
The Advance Ruling Authority held that the activity undertaken by the applicant attracts 5% GST (2.5% CGST + 2.5% SGST) up to 31.12.2018 and is taxable at the rate of 18% (9% CGST + 9% SGST) from 01.01.2019 onwards under the residual increase of serial no. 17 of the Notification No. 11 of 2017 dated 28.06.2017 as amended by Notification No. 27 of 2018 dated 31.12.2018.
The court noted that leasing of mines and grant of mineral rights to a lessee for consideration comes within the meaning of supply of services.
The court relied on a decision of the Supreme Court in the case of Mineral Area Development Authority And Anr. Vs. M/s Steel Authority of India, in which it was that royalty is not a tax but a contractual consideration paid by the mining lessee to the lessor (the Government) for the enjoyment of mineral rights. The transfer of mineral rights to the lessee is distinct from the exercise of those rights and the royalty becomes payable only upon the exercise of the mineral rights by the lessee.
Case Details
Case Title: Broad Son Commodities Private Limited Versus The Union of India
Case No.: Civil Writ Jurisdiction Case No.3531 of 2022
Date: 18-04-2025
Counsel For Petitioner: Sr. Advocate Sujit Ghosh, Suraj Samdarshi
Counsel For Respondent: Sr. Advocate Dr. Krishna Nandan Singh
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