2018 (9) TMI 1522 - HC - Service Tax

Levy of service tax on Royalty - rule 64D of the Mineral Concession Rules - It was submitted that the issue regarding royalty being a tax and therefore, not being amenable to service tax as well as other issues raised in the present petition have not been raised before the Rajasthan High Court and hence, the same have not been considered in the case of Udaipur Chambers of Commerce and Industry v. Union of India 2017 (10) TMI 975 - RAJASTHAN HIGH COURT . Held that - This court is of the view that at this stage it is not necessary to enter into the merits of the submissions advanced by the learned counsel for the petitioner on issues which were not raised before the Rajasthan High Court in the above referred decision. In the light of the fact that the Supreme Court in the appeal preferred against the decision of the Rajasthan High Court has been pleased to protect the appellants therein, at this stage the interests of both the sides can be duly protected if similar relief as granted by the Supreme Court is granted subject to the members of the petitioner associations filing undertakings to the effect that if ultimately they do not succeed in the petitions they shall pay the service tax on the royalty. Issue RULE.

Summary

Issues:
1. Whether royalty payment is subject to service tax under the Mines and Minerals Act.
2. Interpretation of royalty as a tax and its legality under the State legislature.
3. Consideration of royalty as a service for grant of mining lease.
4. Granting of interim relief for payment of service tax on royalty.

Analysis:
1. The primary issue in this case revolves around whether royalty payment is liable to service tax under the Mines and Minerals Act. The petitioner argued that royalty is not a payment for any taxable service but rather a price for winning minerals, representing the state's share without any service element. Reference was made to legal precedents questioning the imposition of service tax on royalty.

2. The interpretation of royalty as a tax and its legality under the State legislature was also discussed. The petitioner cited a Supreme Court decision stating that royalty is a tax, and any cess on royalty is beyond the State's legislative competence. However, subsequent cases and references to larger benches have raised doubts and further deliberation on the issue.

3. Another aspect considered was whether royalty can be construed as a service for the grant of a mining lease. The court referred to a Rajasthan High Court judgment where royalty was deemed as consideration for mining operations, qualifying as a service under the Finance Act. The Supreme Court granted interim relief against the payment of service tax pending further proceedings.

4. Finally, the court granted interim relief for the payment of service tax on royalty, subject to the members of the petitioner associations filing undertakings to pay the tax if they do not succeed in the petitions. The decision was influenced by the Supreme Court's protection of appellants in a related case, aiming to safeguard the interests of both parties until the final resolution of the matter.