9911796707
TMI Blog2024 (1) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... fficers of the Directorate General of Goods and Service Tax, Zonal Unit, Bangalore initiated investigation. Summons was issued to furnish documents and statements were recorded. 1.2 It appeared to the department that the natural resources are the properties of the State, which can either be utilized by the State for the welfare of the public or the rights over such resources, can be assigned to any person for a consideration. The consideration for assigning the right to use of natural resources (grant of license) is determined by taking into account terms of the contract, period of usage, quantum of benefits, etc. On perusal of the Petroleum Mining Lease issued by Government of Tamil Nadu, it appeared that Government has issued the Petroleum Mining Lease under Rule 5(i)(ii) read with Rule 12 of the Petroleum & Natural Gas Rules, 1959 for extraction of crude oil and natural gas in the allotted blocks as against the consideration which is paid or payable by appellant in the form or royalty, PEL/PML, dead rent and surface rent. Accordingly, M/s.ONGC, Karaikkal is paying royalty, PEL/PML, dead rent and surface rent to Government of Tamil Nadu, in lieu of consideration for assigning th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Government or the local authority before the 1st April', 2016; Provided that the exemption shall apply only to Service Tax payable on one-time charge payable, in full upfront or in instalments, for assignment of right to use such natural resource.'' 1.2.4. From the above, it appeared that the exemption has been given to services in respect of assignment of right to use natural resources which have been granted by the Government/Local Authority before 1.4.2016. However, the exemption is limited to one time charges (whether paid in full or in installments) for assignment of right to use such natural resource. In other words, the periodic charges/payments made by the business entities to Government or a local authority have been kept out of the exemption and thus, would be taxable. In the present case, M/s.ONGC, Karaikal are paying the royalty to the Government of Tamil Nadu on monthly basis depending upon the sale quantity of crude oil and gas produced from the oil fields allocated by the Government and hence the royalty payable by appellant on monthly basis is not exempted from payment of Service Tax. 1.2.5. As per Rule 2(1)(d) of Service Tax Rules, 1994 read with Notificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GC shall pay the interest at appropriate rates on the service tax amount demanded as in Sl No (ii) above under Section 75 of the Finance Act, 1994; (iv) I impose penalty of Rs.1,50,00,000/- (Rupees one crore and fifty lakhs only) on them under Sec.76 of the Finance Act, 1994. (v) I also impose penalty of Rs.10,000/- (Rupees Ten thousand only) for contravening various provisions of the Act and rules made hereunder Section 77(2) of the Finance Act, 1994; and (vi) I refrain from imposing any penalty on them under Sec.78 of the Finance Act, 1994." SUBMISSIONS OF PARTIES: 2. The Ld. Counsel Shri. Sujit Ghosh appeared and argued for the appellant. The oral and written arguments put forward are summarized as under: 2.1 The Adjudicating Authority has held that the Appellant is liable to pay Service Tax on a reverse charge basis for royalty amounts paid to the Government, pursuant to mining lease entered with the Appellant since grant of mining lease by the State Government falls squarely within the scope of 'service' under Section 65B (44) of the Finance Act, 1994 (hereinafter referred to as the 'Finance Act'). A. The amount of Royalty paid by the Appellant is not a consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (c) rate of tax and (d) measure of tax, ought to be present. 2.7 It is submitted that features of royalty charged under the Oilfields (Regulation and Development) Act, 1948 squarely falls within the ambit of tax for the following reasons: (a) Royalty is a special impost under the ORD Act and therefore covered under the definition of 'tax' in Article 366(28) of the Constitution of India. The nomenclature of the impost being 'royalty' has no bearing upon the true nature of the levy, which is in the nature of tax. (b) Payment of royalty is a compulsory extraction from the licensee under the statute after the license is granted under Section 6A of the ORD Act read with Rule 14 of the PNG Rules and not a consideration towards any service rendered by the State Government. The royalty collected is not for endowment of any special benefit or grant of any service. (c) Section 6A of the ORD Act fulfils the essential components of taxation viz - (i) Taxable Event - Grant of mining lease is a distinct taxable event. (ii) Taxable Person - The licensee is the person liable to pay tax. (iii) Measure of Tax - The quantum of royalty to be paid is a function of the quantity of oil ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'impost' in the nature of tax. [Refer Laddu Mal and Ors. v. State of Bihar AIR 1965 Pat 491. 2.12 From the entries of Schedule VII, it is evident that various compulsory imposts of varying nomenclature (such as duty, revenue, toll, etc.) have been contemplated by the Constitution of India and the nomenclature adopted to denote such an impost has no bearing upon the true nature of such an impost, which is in the nature of tax. 2.13 Accordingly, it is submitted that the observations of the Ld. Adjudicating Authority are wholly contrary to the settled law and thereby cannot be sustained. Without Prejudice, the Ld. Adjudicating Authority as well as this Ld. Tribunal is bound by the decision of India Cements v. State of Tamil Nadu AIR 1990 SC 85 wherein it was held that royalty is in the nature of tax. 2.14 It is submitted that the Impugned Order at Para 29 has relied upon various High Court decisions and held that right to receive royalty is a mineral right and cannot be considered as a tax. Further the Ld. Adjudicating Authority has placed reliance upon the decision of State of West Bengal v. Kesoram Industries Limited AIR 2005 SC 1646 rendered by a 5-judge bench of the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Mr. Justice Vikram Nath and Hon'ble Mr. Justice Ahsanuddin Amanullah in the case of Union Territory of Ladakh v. Jammu and Kashmir National Conference and Anr. Civil Appeal No. 5707 of 2023 at para 35, it was held by the Hon'ble Supreme Court that courts shall decide matters on the basis of the law as it stands and not wait for the outcome of the review/reference. It is not open for Courts to refuse to follow any decision by stating that it has been doubted by a later co-ordinate Bench. 2.19 As such therefore, it is submitted that the decision of the Hon'ble Supreme Court in the case of India Cements (supra) wherein it is held that royalty is in the nature of tax is good law, and the same is binding on this Hon'ble Tribunal unless it is stayed or set aside. As such therefore, any reliance on the decision of the Kesoram Industries (supra) cannot be countenanced. B. Assuming without admitting that royalty is not in the nature of tax, even then, grant of license by the State Government is not a service provided by the State Government but a discharge of its regulatory functions and the royalty payments under the ORD Act are regulatory fees and not a consideration for a service. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onship between the Appellant and the State Government. Accordingly, the amount of royalty paid to the State Government is a regulatory fee paid to the State Government. 2.23 It is further submitted that Article 110 and Article 199 of the Constitution of India makes a distinction between fee for services and fee for licenses. This by itself demonstrates that even under the Constitution both the two terms, i.e., fee for license and fee for services, are two distinct concepts. This aspect was brought out by the Hon'ble Supreme Court in Corporation of Calcutta and Anr v. Liberty Cinema AIR 1965 SC 1107. 2.24 Licencing as a concept could be adopted by a State either to raise revenue or to regulate trade. The charges collected could further be regulatory in nature or compensatory in character. As such therefore, fees for licenses cannot ipso fact mean that it is a fee for services. Further, where the charges are regulatory in nature, the same do not inhere character of quid pro quo. Wherever the charges are compensatory, these are considered to be for services. The concept of service is absent in case of regulatory fees Vam Organic Chemicals Ltd. v. State of UP 1991 SCCOnLine All 687. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of right to use oilfield, which is a taxable service under the Finance Act. Further this aspect of the transaction of assignment of right to use natural resource, appeared to be predicated on the fact that royalty is a consideration for the taxable service of assignment of right to use natural resource. A brief of the various findings of the Ld. Adjudicating Authority qua assignment of right to use natural resource is hereunder: (a) ... it is seen that the natural resources are the properties of the State which can either by utilized by the State for the welfare of the public or the rights over such resources can be assigned to any person for a consideration. [Para 19 of the Impugned Order at Page no. 127 of the Appeal Memo] (b) ... 'The assignment of right to use for exploration and production of crude oil and gas for consideration by the Government of Tamil Nadu is an act of 'service' as per Section 65B(44) of the Finance Act and squarely covered under the phrase 'any service' used in the definition. Hence, the assignment of right to use of oil fields (natural resources) provided by the State of Tamil Nadu to M/s ONGC Karaikal for exploration and production of crude oil/Nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 132 of the Appeal Memo] 2.28 On a bare perusal of the findings hereinabove, it is clear that the Ld. Adjudicating Authority is emphasising on the fact that the 'assignment of right to use' for exploration and production of crude oil and gas for consideration by the Government of Tamil Nadu is an act of 'service'. Accordingly, if the Appellant is able to establish that the present transaction does not involve assignment of right to use natural resources, then the charge of tax will also fail. The grant of mining lease is not assignment of right as understood by law, for the following reasons. 2.29 It is submitted that in law the term 'assignment' is understood as a situation where the assignor parts with the whole property and the assignee stands, for all intents and purposes, in the place of an assignor. It is therefore distinct from a lease wherein one transfers or grants an interest less than its own, reserving to itself a reversion. This principle was laid down in Higgins v. Monckton, Civ 10829, decided on 20.10.1938 which was taken cognisance of by the Madras High Court in Gladis Devavaram v. S. Subaiah 2011 4 LW 237. 2.30 Further, in Burton v. Camden L.B.C. [2000] 2 AC 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this transaction can be treated as a transaction of 'assignment'. That apart, the aspect of retaining of reversionary interest by the Government is demonstrated in view of Rule 17 of the PNG Rules in as much as the Appellant is not permitted to assign or transfer the mining lease granted by the State Government. 2.35 Furthermore, the Appellant is never the owner of any oil or natural gas that is extracted from the land allocated to the Appellant. The Government is the owner of any oil or natural gas that is extracted and has the right to regulate the distribution of such oil or natural gas. Moreover, the methodology of pricing, distribution and discounts are determined by the Government and the Appellant has no rights over it. Reliance in this regard is placed upon the decision of the Hon'ble Supreme Court in the case of Reliance Natural Resources Ltd v. Reliance Industries Limited Civil Appeal No. 4273 of 2010 wherein the Court observed, in the context of the ORD Act and PNG Rules that natural gas after extraction continues to be the property of the government till the time it reaches the delivery point and therefore, the same cannot be sold without the express approval of the Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the levy. [Refer Petronet LNG Ltd. v Commissioner of Service Tax, New Delhi 2016 (46) STR 513 (Tri-Del) para 36 and Reliance Industries Ltd. v Comm. Of C. Ex and ST, LTU Mumbai 2016 (44) STR 82 (Tri-Mumbai), para 11 and Vazir Sultan Tobacco Co. Ltd. v. CIT (1981) 4 SCC 435. As such therefore, in as much as the taxable event of grant of mining lease has occurred on 06.08.2009 which is prior to the introduction of levy, no service tax can be levied on the royalty payments made by the Appellant to the State Government for the period of April 2016 to June 2017. E. The Ld. Adjudicating Authority has sought to create a charge of tax on the basis of a delegated legislation even when the substantive provisions of law do not levy service tax on royalty payments made for assignment of right which has occurred prior to the 01.04.2016. 2.41 It is further submitted that upon a perusal of Para 23 of the Impugned Order, it is evident that the fulcrum of the demand raised in the Impugned Order is that the Appellant was making monthly payments to the Government of Tamil Nadu. The Ld. Adjudicating Authority concludes that since the Appellant was making monthly payments to the Government, the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the State Government to levy tax on mineral rights emanates from Entry 50 of List II, which has no corresponding entry in List-I. Accordingly, it is only the State Government that has the power to levy taxes on mineral rights and the Central Government is prohibited from entering into this domain. Once a subject matter is within the exclusive competence of the State Legislature, it represents a prohibited field for the Union. 2.47 The Ld. Counsel put forward arguments to set aside the penalties. It is submitted that being interpretational in nature, the appellant cannot be saddled with the guilt of intent to evade payment of service tax. The Ld. Counsel prayed that appeal may be allowed. 3. We have had the advantage of hearing the submissions made by the Ld. Special Counsel, Shri. Dr. S. Subramanian, IRS (Chief Commissioner-Retd) for the department. The written and oral submissions are summarized as under: 3.1 The contention of the Appellant is that the Royalty paid under the provisions of the Oil fields (Regulation & Development) Act 1948 (herein after referred as ORD Act) read with Petroleum & Natural gas Rules (herein after referred as PNG Rules) is a Tax and not a consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered under the Negative List of services under Section 66D of the Finance Act, 1994. 3.4 In para 23 of the impugned order, the adjudicating authority has held that even prior to 1.4.2016, the exemption is limited to one time charges (whether paid in full or in instalments) for assignment of right to use such natural resource. In other words, the periodic charges/payments made by the business entities to Government or a local authority have been kept out of the exemption and thus would be taxable. It was further observed that Central Board of Excise and Customs vide Circular No.192/02/2016-ST dated 13.4.2016 has clarified that Service Tax is applicable on the amount of royalty paid or payable to the Government for assignment of rights to use of natural resources. 3.5 As regards the contention of appellant that mining lease granted by the Government is only a sovereign function in terms of the constitutional/legislative framework and does not involve any quid pro quo and hence will not fall within the definition of 'service' as provided in Section 65B (44) of the Finance Act 1994, it is submitted that the adjudicating authority vide para 24 of the impugned order, relying on para 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... just because the Act under which Royalty is collected has provisions for charging, granting exemption and penalty by way of imprisonment, the Royalty payment cannot be equated to 'Tax' for the aforesaid reasons. Hence, royalty paid by the Appellants is not a 'tax' and it is to be construed as a 'consideration' paid for deriving the benefits from the oil fields allocated by Government by way of lease agreements. 3.9 The Hon'ble Courts in the following cases have held that right to receive royalty is a mineral right and cannot be considered as tax. Bherulal vs. State of Rajasthan & Anr; AIR 1956 Rajasthan 161-162; Dr. S.S. Sharma & Anr. V.State of Pb & Ors., AIR 1969 Pb.79 at 84 Shaurashtra Cement & Chemicals India Ltd vs Union of India & Anr., AIR 1983 Orissa 210 and Hingir Rampur Coal Company Limited vs. State of Orissa [1961 (2)3 CR 537]. 3.10. The main contention of the appellant is that the decision of the Hon'ble Supreme Court in the case of India Cements (supra) wherein it was held that royalty is a tax was delivered by a seven member bench, whereas, Kesoram Industries judgement was given by a five member bench and that the judgement of seven member bench is to be follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has discussed in detail the legal position and arrived at a finding stating that the issue of payment of royalty and payment of service tax on such royalty was extensively dealt in the case of Udaipur Chamber of Commerce and Industry vs. UOI reported in 2018 (8) G.S.T.L 170 (Raj) wherein the Hon'ble Court vide paras 20 to 23 held that the royalty paid by them to the State Government in terms of the provisions of Mining act, 1957 is in the nature of 'consideration' and had further held that the Notification 22/2016 dt. 13.4.2016 is not in conflict with the enabling Act, the Finance Act, 1994. The ratio in the case of Udaipur Chamber of Commerce & Industry would be therefore applicable. It is also submitted that by Constitution (Amendment) Act, 2003 a new entry "92 c" was inserted in the List I (union List) for "taxes on services". In view of the legal position and the circumstances of the case the contention of the applicant that levy of service tax on royalty cannot be imposed by the Central Government under entry 07 of List I is legally incorrect and not in accordance with the statute. Further in view of specific findings by the Hon'ble Supreme Court in the case of Kesoram Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment has filed an appeal against the decision of Tribunal in the case of Petonet LNG Ltd., (supra) relied by the appellant. The Hon'ble Supreme Court vacated the stay and also directed that the respondent refund the amount collected. Hence the issue has not reached finality. The case of Reliance Industries Ltd., is also clearly distinguishable as the same dealt the issue of introduction of new levy and when payment of service tax was received after the introduction of the new levy. In the case on hand, royalty is being paid as a percentage of well head prices which varies from time to time. Therefore, it is submitted that the case laws mentioned are not relevant to the issue. 3.16. It is submitted that the adjudicating authority vide para 34 of the impugned Order-in-Original has held that as per the amended notification 30/2012 ST dated 20.6.2012, in respect of the taxable services notified under Section 68(2) of the Finance Act, 1994, service recipient was made liable to pay service tax instead of service provider under reverse charge mechanism. In this case, the Government of Tamil Nadu had provided the license to explore the production of hydrocarbons in the areas within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges, royalty, etc. to the Government. The activity of assignment of rights to use natural resources is treated as supply of services and the licensee is required to pay tax on the amount of consideration paid in the form of royalty or any other form under reverse charge mechanism." 3.19. The aforesaid principle of payment of tax under reverse charge has been adopted under the GST regime in line with the erstwhile service tax regime, wherein vide F.No.334/8/2016-TRU inter-alia in Sl.No.5, the government has clarified that the consideration paid for provision of service by Government or a local authority is subject to Service Tax by a business entity located in the taxable territory. 3.20. The adjudicating authority vide Para 35 of the impugned Order-in-Original has held that as per Rule 7 of Point of Taxation Rules, 2011 (effective up to 13.4.2016) in respect of persons required to pay service tax as recipient of service, point of taxation shall be the date on which the payment is made. If the payment is not made within three months' from the date of invoice, point of taxation shall be the date immediately following the said period of three months'. The adjudicating authority h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... royalty is a tax, was considered by the Hon'ble Supreme Court in the case of India Cement Ltd vs. State of Tamil Nadu 1990 AIR 85 (decided on 25.10.1989) and held that royalty is a tax. The said decision is rendered by seven judges bench of the Hon'ble Supreme Court. 5.2. Later, in the case of State of West Bengal vs Kesoram Industries Ltd & Ors. AIR 2005 S.C. 1646 (decided on 15.1.2004) the decision rendered in the case of India Cement Ltd (Supra) was doubted. The Ld. Special Counsel appearing for department has relied on this judgment rendered by five judges bench decision to argue that royalty is not a tax. 5.3. It is brought to our notice that the issue whether royalty by itself is a tax has now been referred to nine judges bench in the case of Mineral Area Development (2011) 4 SCC 450, the relevant part of this judgment dt. 30.3.2011 is as under: "Before concluding, we may clarify that normally the Bench of five learned judges in the case of doubt has to invite the attention of the Chief Justice and request for the matter being placed for hearing before a Bench of larger coram than the Bench whose decision has come up for consideration (see: Central Board of Dawoodi Bohra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court to refuse to follow a judgement by stating that it has been doubted by a later Coordinate Bench. In any case, when faced with conflicting judgements by Benches of equal strength of this Court, it is the earlier one which is to be followed by the High Courts, as held by a 5-Judge Bench in National Insurance Company Limited vs Pranay Sethi, (2017) 16 SCC 680. The High Courts, of course, will do so with careful regard to the facts and circumstances of the case before it." 5.7. Although the reference of the issue as to whether royalty is a tax has been made on 30.3.2011, there has been no outcome yet. By judicial discipline, we, therefore have to follow the decision passed by the seven judges' bench in the case of India Cements Corporation Ltd (supra) to hold that royalty is a tax. 5.8. It requires to be mentioned at this juncture that the Hon'ble High Court of Rajasthan in the case of Udaipur Chamber of Commerce and Industry vs UOI 2018 (8) GSTL 170 (Raj) had considered the issue as to whether 'royalty' is a consideration for the mining lease and is subject to levy of service tax under RCM for the period after 13.4.2016. The issue was answered in the affirmative and in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment or State Governments or local authority and who is not deemed as an employee before the commencement of this section. Explanation 2. - For the purposes of this Chapter, - (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct person. Explanation 3. - A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory. Explanation 4. - A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory; 5.10.1. A major amendment was brought forth in the service tax law w.e.f. 1.7.2012 by introduction of the definition of 'service' as above and also by a negative list of services. Section 66 E speaks about declared services. Section 66 E is as under: "Declared services. - The following shall constitute declared services, namely:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain taxable services from service tax. By another Notification No. 22/2016-S.T., dated 13-4-2016, the Government of India on being satisfied that it would be necessary in public interest to further amend the notification dated 20-6-2012, brought certain amendments, relevant from that, is as follows: - "Services provided by Government or a local authority by way of assignment of right to use any natural resource where such right to use was assigned by the Government or the local authority before the 1st April, 2016; Provided that the exemption shall apply only to service tax payable on one-time charge payable, in full upfront or in instalments, for assignment of right to use such natural resource;" 6. According to department, the royalty paid by appellant is in the nature of consideration paid by appellant for assignment of right to use for exploration and production of crude oil/natural gas. That therefore the activity would fall within the definition of 'service' as per Section 65 B (44). The relevant part of the SCN reads as under: "8. It appears that the natural resources are the properties of the State which can either be utilized by the State for the welfare of the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an aircraft or a vessel, inside or outside the precincts of a part or an airport (iii) transport of goods or passengers; or (iv) Any service, other than services covered under clauses (i) to (iii) above, provided to business entities." 6.3 From the above, any service provided by government/local authority to business entities; if it does not fall within clauses (i) to (iii) will not be covered by exemption of the negative list. The view of the department as per the SCN is that 'the assignment of right to use of oil fields' (natural resources) provided by the Government of Tamil Nadu to appellant is a 'service' under Section 65 B (44) and is outside the ambit of the negative list, w.e.f. 13.4.2016. 6.4 In the SCN, the demand of service tax is raised on the appellant under reverse charge basis. As per Rule 2(1) (d) of Service Tax Rules 1994, read with Notification no.30/2012-ST dt.20.6.2012, in respect of services provided by the government or local authority except for services of (i) renting of immovable property services and (ii) services specified in sub-clauses (i), (ii) and (iii) of Section 66D (a) of the Finance Act, 1994, the recipient of service is liable to pay the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee would have an element of quid pro quo, so as to fall within the purview of 'consideration' for service. The question then is how to carve out the element of compensatory part from the royalty paid. The Finance Act, 1994 does not provide for a mechanism to levy service tax on an amount which has the characters of both regulatory fee, as well as compensatory fee. 6.6 Let us proceed to examine whether the dominant part is regulatory or compensatory in nature. It requires to be mentioned that like any other taxing statute the ORD Act, 1948, has a charging provision (Section 6A) under which 'royalty' is levied. The said section reads as under: "6A. Royalties in respect of mineral oils.- (1) The holders of a mining lease granted before the commencement of the Oilfields (Regulation and Development) Amendment Act, 1969 (39 of 1969) shall, notwithstanding anything contained in the instrument of lease or in any law in force at such commencement, pay royalty in respect of any mineral oil mined, quarried, excavated or collected by him from the leased area after such commencement, at the rate for the time being specified in the Schedule in respect of that mineral oil." 6.7 The Act also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , rule 19 and rule 24, or to allow any authorised person as provided in Rule 32 to enter into and inspect any oil well or gas well or any drilled hole or information well in the process of drilling, he shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to one thousand rupees or with both. (2) Whoever, after having been convicted of any offence referred to in sub-rule (1), continues to commit such offence shall be punishable for each day after the date of the first conviction during which he continues so to offend, with fine which may extend to one hundred rupees". 6.8 The liability to pay royalty is fixed by the enactment. The amount of Royalty to be paid is determined on the basis of the well head prices. The royalty to be paid differs periodically. In order to collect royalty, a method is provided by the Act. The payment on the basis of well head prices is a measure for collection of the royalty. The provisions contained in the ORD Act, 1948 read with P & NG Rules, 1959 enables us to draw a strong inference that royalty is more of a regulatory fee than compensatory. The amount of royalty to be paid though differs perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as lease, the activity is likely to fall under 'Renting of Immovable Property Services.' In the case of renting of immovable property services, the liability to pay service tax is on forward charges basis, even if the services are provided by government to business entities. The document explicitly is a grant of mining lease. We find no reason to hold that it is an assignment of right to use of oil/natural gas. The activity impugned in the SCN is the 'assignment of right to use' which is not so as per the document issued by Government of Tamil Nadu to the appellant. The Ld. Special Counsel appearing for the department has argued that Royalty is not a 'tax' or a 'fee' as the ORD Act read with Rules uses the words 'Royalty' and 'fees'. The said Act and Rules also uses the word 'rent' (dead rent, surface rent, etc..). Payment of rent is more common in the case of lease and not in the case of 'assignment'. The definition of 'renting' under the service tax law has already been noticed. 9. Again, at this juncture, the argument put forward by the Ld. Counsel that the department has sought to create a charge of tax on the basis of a delegated legislation, (i.e. on the basis of the Mega ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easing, licensing or other similar arrangements, in respect of immovable property.'' Again, under Section 66E (Declared Services) clause (j) speaks about service in the nature of 'assignment' by the government of the right to use the radio frequency spectrum and subsequent transfers thereof. 11. The department does not have a case, that the activity falls within lease and that the royalty paid is rent. This is because, if so, the liability to discharge service tax would be on the government (being the service provider). The demand raised is indeed on the basis of Sl.No.61 of the exemption notification. Para 15 of the SCN also would show that the demand has been raised on the basis that the royalty which is paid periodically is not exempted from service tax. The argument put forward by the Ld. Counsel that the liability is derived on the basis of an exemption notification and not charging provision is not without substance. 12. From the discussions above, we hold that the demand of service tax cannot sustain and requires to be set aside. Ordered accordingly. 13. In the result, the impugned order is set aside. The appeal is allowed with consequential reliefs, if any. (Pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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