RCM on Royalty Charges, Goods and Services Tax - GST

[Anupam Bidasaria]

We party is a civil engineering contractors, executing works for railways. They are using soil for embankment, though they have not taken any lease from mining authorities, however as per rules royalty is payable on extraction of soil. They are not paying royalty directly, but the railways is recovering the amount of royalty due from their bills and depositing this to revenue authorities.

The soil extracted is being used in works which are chargeable to the GST. Is the contractor liable to pay GST under RCM on royalties paid by the railways on account of the work, executed by them, which is charged to GST on the full value, including the royalty amount.

Please guide,

Is the

Posts / Replies

[Sadanand Bulbule]

Dear Sir, 

1] Please refer the following landmark judgement:

2024 (7) TMI 1390 - SUPREME COURT (LB) - MINERAL AREA DEVELOPMENT AUTHORITY & ANR. VERSUS M/S STEEL AUTHORITY OF INDIA & ANR ETC.

2] As regards to the liability of GST on royalty paid on the mineral/mining activities, the final decision of the Hon'ble Supreme Court is likely to come out in the third week of this month.

3] Till then the liability of GST [RCM] on such royalty paid by the Mining License/Lease holder continues to be in force as provided under Section 15[2][a] of the CGST Act.

[Shilpi Jain]

The first aspect to examine is whether the contractor is the person required/liable to pay royalty to the Government. DOes he have the mining license in his name.

If not and if it is merely a recovery of royalty from his payments then it may not be liable under RCM in the hands of the contractor.

[Hemant Patil]

Lets be practical in terms while answering the questions . When Royalty becomes expenses , its after paying GST on Gross value of Contract. Remember after paying GST Tax on Contract Bill we take deduction to expenses. When we have paid the GST Tax on royalty and also we are not the license holder of Mining we are not liable for RCM. If we remove the part of royalty from contract and state it as expenses and pay the tax is department going to ask for rcm if yes then is it not a double taxation

[Shilpi Jain]

Royalty will be in the nature of royalty only in the hands of the person who has the mining license. 

When recovered from others it will be in other nature and not necessarily attracting RCM liability 

[Sadanand Bulbule]

Dear Sir 

 GST on royalty is payable under RCM by the holders of " Mining Lease" license issued by the  State DMG only. And the subsequent buyers of mineral ores from such lease holders are not liable.  It's as simple as that.

[Sadanand Bulbule]

Dear all

Following is general information related to RCM & its utilization:

The tax payable under the provisions of sub-section (3) and (4) of Section 9 is included in "input tax" and the credit of input tax charged on any supply of goods or services or both which are used or intended to be used in the course or furtherance of business by a person, the said amount shall be credited to his electronic credit ledger. And such person is eligible to avail ITC of GST paid under RCM subject to fulfilment of conditions laid down under section 16 of CGST Act, 2017.

That's all.