STAY ON PAYMENT OF GST ON ROYALTY FOR GRANT OF MINING LEASE

The Honorable High Court of Jharkhand has stayed order of payment of GST on royalty for grant of mining lease in batch of petitions before it by an interim order vide Order dated 20.4.2022.

The Order was based upon Para 3 of the Order passed in W.P.(T) No. 432 of 2021 dated 24.02.2022; which is reproduced as under:

“On being apprised of the order dated 04.01.2022, we deem it necessary to hear the prayer of the petitioners on the question of stay on payment of GST on royalty for grant of mining lease. Since this Court has earlier granted stay on payment of GST for grant of mining lease / royalty in view of the interim order passed by the Apex Court in the case of M/s Lakhwinder Singh (supra) in the batch of writ petitions such as W.P (T) No. 4609/2021 and also W.P (T) No. 4510/2021, those matters be posted along with the present matters for consideration on the continuation of interim relief granted to them earlier. As such, learned counsel for the petitioners pray for an earlier date for hearing on the interim plea.”

The legal proposition is whether royalty has been considered to be a tax or profit pendre and the same issue is pending before the 9 Judge Constitution Bench. The instant batch of petitions challenges the levy of service tax on royalty/ DMF.

The Apex Court in the case of M/s Lakhwinder Singh had earlier been pleased to grant interim protection on levy of GST on mining lease / royalty being guided by similar consideration.

Though the said writ petition has been dismissed to enable the petitioners to avail of the alternative remedy before the concerned High Court under Article 226 of the Constitution of India, the principles on which such interim protection was granted by the Apex Court on levy of GST on mining lease/ royalty, should apply in such cases.

Interim order has been passed by other High Courts on independent consideration, such as in the case of Oil India Limited Vrs. Union of India & others (W.P.C. No. 3872 of 2020) by the High Court of Gauhati vide order dated 17.11.2020. Similar order has been passed by the Andhra Pradesh High Court in the case of M/s C.R. Granites Vrs. The Assistant Commissioner (ST)(FAC), Addanki Circle, Addanki & another in Writ Petition No. 30248 of 2021, order dated 22.12.2021. It is submitted that the different High Courts as above have taken into consideration that the question whether royalty is a tax or not is pending consideration before the 9 Judge Constitution Bench of the Apex Court and till then the ratio rendered by the 7 Judges Bench in the case of India Cement Ltd. that royalty is a tax holds the field.

The issues such as royalty are in the nature of a “Tax” or profit pendre and cannot be termed as a consideration towards supply of services in terms of Section 15 of the GST Act.

Article 366 (12 A) of the Constitution of India, which defines “Goods and Services Tax”. Article 366 (12) defines Taxation and includes the imposition of any tax or impost. Reliance is also placed upon Article 246 A of the Constitution of India inserted by 101st Constitutional Amendment where under special provisions has been made in respect of Goods and Service Tax.

Provisions of the CGST Act such as Section 15, which provides for value of taxable supply. However, the basic plea of the petitioners is that royalty being a tax cannot be the price paid for any supply of services so to say, conceived under the GST Act for leasing out the minerals to the writ petitioners / lessee within the meaning of the expression used under Schedule II of the Act. A Tax in the nature of GST cannot be imposed on royalty, which in itself has been held to be tax by the Apex Court in the case of India Cement.

Levy of GST on royalty/ DMF is akin to 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 in one Tax in the nature of Goods and Services Tax. Article 366 (12A) of the Constitution of India defines Goods and Services Tax to means tax on supply of goods and services or both.

The nature of levy under the service tax under the Finance Act, 1994 imposed by the respondents are akin to GST. On a mistaken notion of supply of services by way of leasing of mineral rights to the petitioners by the State, GST is sought to be imposed on royalty. Since the levy of service tax on royalty/ DMF has been stayed by the Apex Court in the case of Udaypur Chambers of Commerce and Industry & others Vrs. Union of India & Others in Special Leave to Appeal (C) No. 37326 of 2017.

By Romir S Goyal, Advocate

W.P (T) No. 432 of 2021