2024 (9) TMI 1388 - HC - GST

Levy of Service Tax on royalty - challenge to SCN - HELD THAT - The SCN has already been issued on 20.10.2021 and the petitioner was called upon for personal hearing in pursuance of the said show cause notice, the remedy lies on the petitioner to pursue his case before the authorities in the show cause notice issued on 20.10.2021 and to raise all his grievances there. In view of the judgment of Hon ble Supreme Court passed in Mineral Area Development Authority Case 2024 (7) TMI 1390 - SUPREME COURT (LB) the present petition is disposed of, however, since the notice dated 23.02.2024 has already lost its efficacy as the date mentioned in the notice is already expired, therefore, it would be appropriate to direct the petitioner to appear before the authority concerned on 28/08/2024 and then the authority concerned after giving the proper opportunity of hearing to the petitioner, decide the case in accordance with law. Petition disposed off.

Summary

Issues:
Challenge to show cause notice for service tax on royalty under Finance Act, 1994.

Analysis:
The petitioner sought relief from the impugned proceeding initiated by the respondent, challenging the show cause notice for payment of service tax on royalty. The petitioner argued that royalty is not liable to service tax as it is a tax itself, contending that taxing royalty would be a violation of the Finance Act, 1994.

The respondents referred to a recent Supreme Court judgment in Mineral Area Development Authority case, where it was established that royalty is not considered a tax. The Supreme Court clarified that royalty is a contractual consideration paid for mineral rights, not a tax. The Court emphasized that the liability to pay royalty arises from the terms of the mining lease and cannot be equated to a tax.

The Supreme Court's detailed analysis in paragraphs 123 to 130 concluded that royalty is not a tax, emphasizing that it is a contractual payment for mineral rights. The Court clarified that Parliament lacks the authority to tax mineral rights under Entry 54 of List I, as it falls under the State legislatures' domain. Additionally, the Court overruled previous decisions that suggested otherwise, affirming that royalty is not subject to taxation.

Given the Supreme Court's ruling that royalty is not a tax, the petitioner's argument that royalty should not be taxed was upheld. The petitioner did not contest this legal position. The Court directed the petitioner to pursue the case before the authorities based on the show cause notice issued earlier, as the subsequent notice had expired. The petitioner was instructed to appear before the concerned authority for a fair hearing and a lawful decision on the matter.

In conclusion, the High Court disposed of the petition in light of the Supreme Court's judgment, confirming that royalty is not subject to service tax. The petitioner was advised to address any grievances through the proper channels based on the initial show cause notice, with a directive to appear before the authority for further proceedings.