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TMI Blog2024 (1) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... e Royalty, the liability of which lies primarily on the shoulders of the lease- holder. Merely because the payment is made by the buyer, it cannot automatically be said that the primary liability is on him, that any relatable services were received by him, or indeed that the leaseholder is absolved of liability - Accordingly, the payment of the Royalty being the primary obligation of the lease- holder, it cannot be said that the services, if any, relatable thereto, could have been rendered to the buyer (the Appellant) as the recipient of service. The payment of Royalty, FDT and other applicable taxes/charges by the buyers of the iron ores to the Monitoring Committee, as per the price of iron ore purchased in auction, would not be held to be liable to Service Tax and hence, the buyer i.e., the appellant herein, could not be held to be the service recipient from the State Government for the purposes of liability to Service Tax. Hence, there is no question of any liability to pay Service Tax on the lease of mines and right to use of natural resources under reverse charge mechanism. The said findings in the impugned order are therefore unsustainable in the eye of law. The demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Monitoring Committee and payable to the Government of Karnataka. It is therefore held that in respect of the payments effected, the assessee was liable to pay Service Tax under reverse charge mechanism in terms of Section 68(2) of the Finance Act, 1994, read with Rule 2(1)(d)(i)(E) and Rule 6 of the Service Tax Rules, 1994 and Notification No. 30/2012-ST dated 20.06.2012, as amended. 3.2 It is further held that the consideration so paid to the Monitoring Committee towards Royalty and Forest Development Tax payable to the Government of Karnataka was for service as per section 65B(44) of the Finance Act, 1994, which was squarely covered under any service used in the said definition; that the assignment of right to use natural resources by the Government of Karnataka to the mine lease holders for mining of iron ore is not covered under the Negative List of services under Section 66D of the Finance Act, 1994. 3.3 Thus, the demands proposed in the Show Cause Notice came to be confirmed thereby demanding Service Tax of Rs.5,00,33,713/- for the period from April 2016 to June 2017, along with applicable interest and an equal amount of penalty under Section 78 of the Finance Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the above Lot. The acceptance letter also revealed that the tax invoice would be issued upon the receipt of the payments as mentioned above. The Monitoring Committee had issued a Tax Invoice No. 59/967 dated 07.10.2016 for the above amounts. (vi) Similar acceptance letters and tax invoices, reflecting the mining lease holder s name and mining lease number, quantity of iron ore, material value plus Royalty plus FDF were placed on record for illustration of the fact that the assessee was a buyer of iron ore in the auction conducted by the Monitoring Committee. (vii) The State Government granting lease of mine and right to use of natural resources by way of extraction of mineral in the mine is the service provider and the Holders of mining lease or Grantee of Rights to use of natural resources in the leased mine is the service receiver. (viii) The mining lease holders are liable to pay Royalty as consideration towards lease of mine and the Royalty amount would vary with the quantity of minerals extracted or removed accordingly in terms of Section 9 of the Mines and Minerals (Development and Regulation) [MMDR] Act, 1957. The mining lease holder is liable to pay Royalty or De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted the same under the name and Service Tax Registration of the respective mining lease holders. He would thus invite our attention to a print-out of the copy of e-mail dated 08.11.2016 issued by the Monitoring Committee and a list of mining lease holders in whose names Service Tax and Royalty was remitted by the Monitoring Committee for the period 2016 17, which are placed on record. 5.6 He would further contend that the sale of iron ore by the mining lease holders to the buyers by way of e-auction by the Monitoring Committee was a transaction of sale and not a service. The appellant has paid the price for the iron ore, which comprised of bid value i.e., material value, Royalty, Forest Development Tax/Fee, VAT/CST and other charges as specified by the Monitoring Committee in the acceptance letters and tax invoices under the directions and orders of the Hon ble Apex Court, which is binding in terms of Article 141 of the Constitution. He would also rely on a decision of the Hon ble Apex Court in the case of M/s. Bharat Sanchar Nigam Ltd. v. Union of India [2006 (2) S.T.R. 161 (S.C.)] in respect of the principle of mutual exclusivity between transactions of sale and service. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to use of natural resources from the State Government of Karnataka for mining of iron ore, on which the Royalty and Forest Development Tax/Fee are payable under reverse charge mechanism? 8.1 The appellant is a manufacturer of iron and steel and are purchasing iron ore from various mines. It had participated in the auction conducted by the Monitoring Committee for sale of iron ore by holders of mining leases in the State of Karnataka. The levy of Royalty in respect of the lease of mines is on the holder of the mining lease in terms of Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957. For the sake of convenience, Section 9 is reproduced hereinbelow: Royalties in respect of mining leases. 9. (1) The holder of a mining lease granted before the commencement of this Act 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 removed or consumed by him or by his agent, manager, employee, contractor or sub- lessee from the leased area after such commencement, at the rate for the time being specified in the Second Schedule in respect of that mineral. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enience: - 2. The following modalities for the sale of the existing stock of iron ore, keeping the account of the sale proceeds and related issues are submitted for the consideration of this Hon ble Court: viii) the successful bidder will, in addition to the sale price of the iron ore, be required to pay the applicable royalty (at 10% of the market price), Forest Development Tax, sales tax, cess and other applicable charges; xii) the Monitoring Committee will have the powers and responsibilities for/to: (c) the receipt of sale price, royalty, taxation of applicable charges in bank account(s) maintained in the nationalized bank(s), investment in the fixed deposits in the nationalized bank(s), payment of royalty, taxes and applicable charges, payment of service charges for e- auction, investment of the balance amount in the fixed deposits with the nationalized bank(s) and its disbursal as per the directions of this Hon ble Court; 4. It is also recommended that the Monitoring Committee may not be allowed to utilize any part of the sale proceeds or interest thereon except for depositing the royalty, taxes and other applicable charges, payment of the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d applicable taxes, to the holders of mining lease directly and the balance of 10% is to be deposited with the Monitoring Committee along with Royalty, FDT and other applicable taxes/charges. 11.1 It is clear from Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 that the Royalty is to be paid by the holder of the mining lease. Therefore, the liability in respect of the payment of Royalty is fastened by law on the lease- holder and not on the buyers like the appellant. Sub- paragraph (F) below paragraph 5 of the Order of the Hon ble Supreme Court dated 18.04.2013 in the case of Samaj Parivartana Samudaya merely lays down the manner in which the payment of these Royalties will be made. Sub-paragraph (F) stipulates that the buyer will make the payment of the Royalty, the liability of which lies primarily on the shoulders of the lease- holder. Merely because the payment is made by the buyer, it cannot automatically be said that the primary liability is on him, that any relatable services were received by him, or indeed that the leaseholder is absolved of liability. To construe sub-paragraph (F) in any other manner would be to construe the Hon ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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