GST ON ROYALTY UNDER RCM, Goods and Services Tax - GST

[Sadanand Bulbule]

Dear experts

It is admitted fact that GST on royalty is to be paid under RCM by Mining Lease holders. However in few districts of Karnataka, mining activities have been fully controlled by the Monitoring Committee appointed by the Hon'ble Supreme Court. As such they are under the obligation to strictly follow the terms and conditions imposed by such committee. One of the conditions is such mining lease holders have to pay Royalty, Forest Development Cess and GST directly to the committee and in turn it would remit it to the respective Government departments.

The question is since the mining lease holders have already paid GST on royalty under "Forward charge mechanism [FCM]", the GST Authorities are fastening once again tax liabiIity under RCM despite bringing to their knowledge the said legal position.

What is the remedy for such double liability? Explore the solutions.

Posts / Replies

[KALLESHAMURTHY MURTHY]

Dear Sir, 

In my humble opinion, the royalty Charges on mines and minerals attract GST in two ways.

1. (I am discussing on Quarry extraction – sale of Materials and Services received from Govt.))

One is on sale of mines & minerals extracted and evaluated since the Royalty Charges is includible in the sale value as per Sec. 15 under FCM covered by the HSN Code 2516 taxable @5%.

Secondly, for the services received from the Government as per Notification 13/2017 dt.28-06-2017, the liability to pay tax gets transferred to the recipient “Lease License Holder” for such services under RCM as the services for right to use minerals including exploration and evaluation are provided by the Stale Government covered by heading 9973, attracting GST rate @18 % as prescribed in Entry No. 17(ii) of Notification No. 11/2017 dated 28-06-2017.

The rate of tax paid may not be the same on two occasions.

2. There is one theory raised on account of the following Judgement. 

The Hon’ble Supreme Court in the case of Mineral Area Development Authority v. Steel Authority of India (2024) 42 J.K.Jain’s GST & VR 70 (SC), held on ‘Royalty’ as under; 

1. The Royalty is not a tax. It is a consideration paid by a mining lessee to the lessor in terms of the Lease Deed, for the enjoyment of mineral rights. 

 

ii) A “Lease” connotes a transfer of a right of enjoyment in immovable property for a certain time in lieu of consideration. 105 of the Transfer of Property Act-1882 defines a lease of immovable property as a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity. 

iii) Upon payment of Royalty, a mineral excavated from the Leased Mine is a benefit arising out of land, which is an Immovable Property.

In view of the ratio of the above judgement the Royalty paid for the enjoyment of mineral rights has been held to be a part of Immovable Property, on which the State Govt. has the power to levy Tax only under the authority of Law since Article 265, Constitution of India states that; “No tax shall be levied or collected except by authority of law” 

GST Act has not granted any authority to the Govt. to levy GST on Immovable Property. 

 

3. As per Judgement, the interest gets waived for all the assessees for the tax paid on Royalty before 25-07-2024.

 More clarification is expected from all the learned persons.

[Manoj Thakur]

This is not the first example of some revenue officer somewhere issuing a demand notice despite an apex court ruling. Hence it needs to be replied quoting the same, concluding that tax liability is already discharged.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

                      Sir, The department is legally incorrect.

                     If GST has been paid under FCM (though may be payable under RCM), GST cannot be demanded again under RCM on the same transaction from the same party and for the same period. The case laws are available to this effect. 

                          Whether SCN has been issued or not  ? 

                           

[Sadanand Bulbule]

Sir, final order under Section 74 has been passed despite explaining everything related to this double liability. This is the mockery and abuse of power. 
“ One nation, double tax” is the new tagline of the GST regime. Literally honest taxpayers are financially murdered this way. And unfortunately Government sponsors such illegal orders. Who is to bell the tiger? ( cat is no more in the picture) 

[Manoj Thakur]

Unfortunately these things happen in many other areas in taxation. Option is Appeal, if second appeal; may take little time.

[Sadanand Bulbule]

Sir, every legal remedy has its own unexplainable cost. Sometimes remedy is worse than the disease. 

[Sadanand Bulbule]

The GST Authorities should avoid the avoidable litigation and stop disruption of business to save time,energy and money.