2022 (4) TMI 1296 - HC - GST

Mining lease holders get interim protection from GST on royalty and District Mineral Fund payments

M/s. Mandhan Minerals Corporation and Others Versus 1. Union of India through the Secretary, Ministry of Finance, Department of Revenue, Government of India New Delhi, Director General of G.S.T. Intelligence, Regional Unit, Jamshedpur, Additional Director, G.S.T. Intelligence, Regional Unit, Jamshedpur, Superintendent (Adjudication), Central Goods and Service Tax, Dhanbad

HC granted interim protection to mining lease holders against GST levy on royalty and District Mineral Fund. Court noted that royalty's classification as ... Levy of Service Tax and / or GST on royalty and District Mineral Fund (DMF) - royalty for grant of mining lease - seeking interim protection in respect of levy of service tax / GST on royalty - HELD THAT:- It is clear that the levy of GST by the respondents is on the royalty/DMF in respect of the mining lease granted to the petitioners. The decision of the Apex Court by the 7 Judges Constitution Bench in the case of INDIA CEMENT LIMITED VERSUS STATE OF TAMIL NADU [1989 (10) TMI 53 - SUPREME COURT] that royalty is a tax is under consideration before a 9 Judges Constitution Bench of the Apex Court upon reference made in the case of Mineral Area Development Authority & others [2011 (3) TMI 1554 - SUPREME COURT]. Following the interim order passed by the Apex Court in the case of M/S. LAKHWINDER SINGH VERSUS UNION OF INDIA & ORS. [2021 (11) TMI 336 - SC ORDER], this Court had been pleased to grant interim protection on levy of GST on mining lease / royalty/DMF. In the background of the legal position that royalty has been considered to be a tax or profit pendre and the issue is pending before the 9 Judge Constitution Bench, we are of the considered view that the petitioners have made out a case for interim protection. As such, there shall be stay of recovery of GST for grant of mining lease/ royalty/DMF from the petitioners till further orders. However, the Revenue is not restrained from conducting and completing the assessment proceedings. Learned counsel for the respondent State and CGST are granted 3 weeks’ time to file counter affidavit in respective writ petitions in which no counter affidavit has been filed - Let these matters be listed in the 1st week of July, 2022. Issues Involved:1. Levy of GST on royalty and District Mineral Fund (DMF).2. Levy of service tax on royalty.3. Interim protection from levy of GST and service tax on royalty and DMF.Detailed Analysis:1. Levy of GST on Royalty and District Mineral Fund (DMF):The petitioners challenged the levy of GST on royalty and DMF, arguing that royalty is in the nature of a 'Tax' or profit pendre and cannot be considered a consideration towards the supply of services under Section 15 of the GST Act. They relied on the Supreme Court's judgment in India Cement Ltd. v. State of Tamil Nadu, which held that royalty is a tax. The petitioners contended that this issue is pending before a 9 Judges Constitution Bench of the Supreme Court, and until a decision is made, the earlier judgment should hold. They also referred to Article 366 (12A) and Article 246A of the Constitution, arguing that GST cannot be imposed on royalty as it is considered a tax. The petitioners cited various judgments, including Dewan Chand Builders & Contractors v. Union of India and Commissioner of Income Tax, Udaipur, Rajasthan v. Mcdowell and Company Limited, to support their claim that a tax cannot be imposed on another tax.2. Levy of Service Tax on Royalty:Several writ petitions exclusively challenged the levy of service tax on royalty. The petitioners argued that service tax on royalty has been stayed by the Supreme Court in Udaypur Chambers of Commerce and Industry v. Union of India, and similar interim reliefs have been granted by other High Courts. They requested interim protection from the levy of service tax on royalty and DMF, arguing that the principles applied in the case of service tax should also apply to GST on royalty.3. Interim Protection from Levy of GST and Service Tax on Royalty and DMF:The petitioners sought interim protection from the levy of GST on royalty and DMF, emphasizing that they are under constant threat of recovery and may incur significant interest on unpaid amounts. They cited the interim order granted by the Supreme Court in M/s Lakhwinder Singh v. Union of India, which provided interim protection from GST on mining lease/royalty. The petitioners argued that similar interim protection should be granted in their cases.Court's Decision:The court considered the submissions and noted that the issue of whether royalty is a tax is pending before a 9 Judges Constitution Bench of the Supreme Court. Following the interim order passed by the Supreme Court in M/s Lakhwinder Singh, the court granted interim protection from the levy of GST on mining lease/royalty/DMF until further orders. The court allowed the Revenue to conduct and complete assessment proceedings but stayed the recovery of GST. The court also extended similar interim protection to writ petitions challenging the levy of service tax on royalty/DMF, following the interim order dated 02.03.2021 in Sunita Ganguly v. Union of India.The respondents were granted three weeks to file counter affidavits, with two weeks thereafter for the petitioners to file rejoinders. The matters were listed for the first week of July 2022.