GST on mining royalty follows reverse charge; departmental letter authorising direct collection was quashed

Royalty paid for mining activities was treated as subject to GST under the reverse charge mechanism, and the existing GST return and payment procedure was to continue. On that accepted position, the departmental letter could not validly authorise collection of GST on royalty from mining lease holders by any contrary method. The court therefore found no need for further adjudication on the communication and quashed the impugned letter dated 8-11-2017.

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Issues: Whether the State's letter authorising collection of GST on royalty from mining lease holders was valid, or whether GST on royalty was required to be collected under the reverse charge mechanism by the lessee.

Analysis: The dispute centred on the treatment of royalty collected in the mining sector and the method of GST collection. The Court noted the stand of the respondents that the royalty paid for mining activities attracted GST under the reverse charge mechanism and that the existing procedure for GST returns and payment would continue. In view of this accepted position, and since the reverse charge mechanism itself was not disputed, no further adjudication was found necessary on the challenged departmental communication. The petitioners' reliance on Section 9(3) of the Central Goods and Services Tax Act, 2017 and the corresponding rate notification supported the conclusion that the impugned letter could not authorise a contrary collection method.

Conclusion: The impugned letter dated 8-11-2017 was quashed and set aside, and the writ petitions were allowed.

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