2021 (12) TMI 416 - HC - GST

Award of Excess Royalty Collection Contract (ERCC) to the Royalty Contractors - double burden on the miner/lease holder/end user - reverse charge mechanism - HELD THAT - Once, the reverse charge mechanism itself has not been contested by the respondents and it is an accepted proposition and the same is further supported by the pleadings filed by the respective respondent parties, we do not find any reason to make any further adjudication in the matter. Petition allowed.

Summary

Issues:
Challenge to letter issued by Finance Department for GST collection on royalty in mining activities.

Analysis:
The petitioners sought relief by challenging a letter issued by the Finance Department of the Rajasthan government regarding GST collection on royalty in mining activities. The petitioners, engaged in mining as registered lease holders, raised concerns about the imposition of GST by Royalty Contractors appointed by the government. The Royalty Contractors were authorized to collect GST on behalf of the government from mining lessees without supplying natural resources. The definition of "Excess Royalty Collection Contract" under relevant rules specified the process of collecting royalty on specified natural resources. The bone of contention was the Finance Department's letter allowing contractors to collect GST at 18% as forward charges.

The petitioners argued that this authorization to collect GST was contrary to Section 9(3) of the CGST Act, 2017, and notification No. 13/2017 Central Tax (Rate). They highlighted that the definition of "Supplier" under Section 2(105) of the CGST Act includes agents acting on behalf of suppliers. However, the respondents contended that the Royalty Contractors were appointed exclusively for royalty collection without supplying natural resources. They clarified that lease holders were required to pay GST under the reverse charge mechanism as per the notification.

The respondents maintained that the existing procedure for filing GST returns and payment under the reverse charge mechanism would continue for lease holders. They argued that the liabilities of lease holders would not be affected by the amended notification. The court noted that since the reverse charge mechanism was not contested and was an accepted proposition, further adjudication was unnecessary. Consequently, the court allowed the writ petitions, quashing the letter issued by the Finance Department in 2017. Any subsequent letters issued in connection with the challenged letter were also deemed quashed.