Mining Royalty Payments: Service Tax Demand Stayed Until Supreme Court Resolves Whether Royalties Constitute Tax or Service Consideration

The HC stayed a demand-cum-show cause notice for service tax on mining royalty payments pending final determination. The court noted that the Supreme Court had previously granted stays in similar cases regarding whether GST and Service Tax are applicable to royalty payments to the Government for mining minerals. The petitioner argued that royalty payments are in the nature of tax rather than consideration for goods or services. The HC recognized that the fundamental nature of mining royalty is currently pending before a larger SC bench and granted interim relief while directing respondents to file a counter affidavit.

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Issues involved:
1. Whether GST and Service Tax are chargeable on the amount of royalty payable to the Government on mining of mineralsRs.

Analysis:
The writ petition was filed seeking to quash a demand-cum-show cause notice issued for service tax under the Finance Act, 1994. The main issue revolved around whether GST and Service Tax are applicable to the royalty payable to the Government for mining minerals. The petitioner's counsel referred to various orders of the Hon'ble Supreme Court in similar cases. One such order dated 11.01.2018 granted a stay on payment of service tax for grant of mining lease/royalty. Another order dated 18.08.2020 also granted a stay on payment of service tax for grant of mining lease/royalty. Furthermore, an order dated 04.10.2021 reiterated the stay on payment of GST for grant of mining lease/royalty. The petitioner highlighted that the nature of royalty had been referred to a larger Bench by the Supreme Court in a previous case, which is still pending.

Additionally, an interim order passed by a coordinate Bench of the Court in another case emphasized the petitioner's argument that royalty payment is in the nature of tax and not consideration for goods or services. The petitioner relied on a Constitution Bench decision of the Supreme Court to support this argument. The Court acknowledged the interim orders passed by the Supreme Court and the coordinate Bench, leading to the conclusion that the petitioner had a case for interim relief. The Court directed the respondents to file a counter affidavit within three weeks, allowing the petitioner a week to file a rejoinder affidavit. The case was listed for hearing after four weeks, along with other similar writ petitions. Until further orders, the demand-cum-show cause notice for service tax remained stayed.

In conclusion, the judgment addressed the issue of whether GST and Service Tax are applicable to royalty payments for mining minerals. The Court considered various orders of the Supreme Court and a coordinate Bench, along with the petitioner's arguments regarding the nature of royalty payments. The interim relief was granted based on the precedents set by the Supreme Court and the coordinate Bench, emphasizing the need for further examination of the matter.

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