Royalty under mining leases treated as taxable service consideration; Rajasthan HC upheld the levy and related exemption clarification.

Royalty payable under a mining lease was examined as consideration for a taxable service under the service tax framework, with the Rajasthan HC treating the lease as a contractual assignment of the right to use natural resources for consideration. The court held that the levy applied after 1 April 2016, that the activity did not fall within the exclusion for transfer of title in immovable property, and that the mineral-bearing area was not goods for this purpose. The exemption notification and its clarification were upheld as consistent with the parent statute, and the challenge to the levy failed.

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Issues: Whether royalty payable under a mining lease is consideration for a service so as to attract service tax after 1 April 2016, and whether the exemption notification and its clarification were ultra vires the enabling provisions.

Analysis: The levy was examined under the definition of "service" in the Finance Act, 1994, the concept of declared services, and the exemption regime introduced by Notification No. 25/2012-ST as amended by Notification No. 22/2016-ST. The Court held that royalty payable under Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 is not a mere statutory payment but a consideration forming part of the bargain for grant of the mining lease. The mining lease was treated as a contractual arrangement under which the State assigns the right to use natural resources for consideration. The Court further held that the activity does not fall within the exclusion for transfer of title in immovable property, and that the mineral-bearing area is not "goods" for this purpose. The exemption notification, as clarified, was therefore held to be consistent with the parent statute.

Conclusion: Royalty under a mining lease was held to be consideration for a taxable service, and the challenge to the notification failed.

Final Conclusion: The writ petitions were dismissed because the impugned levy on royalty payable for mining leases was upheld as legally valid under the service tax framework.

Ratio Decidendi: Royalty payable for mining rights, when it forms part of the contractual consideration for assignment of the right to use natural resources, constitutes consideration for a taxable service and is not saved by the exclusion relating to transfer of title in immovable property.

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