Rajasthan HC upholds GST levy on mining royalty under reverse charge mechanism following coordinate bench precedents

The Rajasthan HC dismissed a petition challenging the constitutional validity of GST levy on mining royalty on reverse charge basis. The court held it was bound by final orders of coordinate benches in previous cases establishing that royalty constitutes consideration for assignment of rights to use natural resources, qualifying as a service under Section 65-B(44) of the 1994 Act. The court refused to entertain the petition based on interim orders from other cases, emphasizing that final verdicts of coordinate benches must be followed over interim orders. The petition was disposed of accordingly.

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Issues Involved:
1. Legality and validity of imposition of GST on royalty.
2. Constitutionality of Sections 9, 15, 50, 73, and 74 of the CGST Act of 2017/RGST Act of 2017.
3. Taxability on the grant of mining rights under GST law.
4. GST applicability on mining royalty/dead rent and contributions to DMFT/RSMET.
5. Classification of royalty under GST notifications.

Issue-wise Detailed Analysis:

1. Legality and Validity of Imposition of GST on Royalty:
The petitioners challenged the imposition of GST on royalty, arguing that it should not be subject to GST. The respondents countered by stating that the issue had already been decided in previous cases by different Division Benches of the Rajasthan High Court, which upheld the imposition of GST on royalty. The court referred to several past decisions, including Udaipur Chambers of Commerce and Industry & Others Vs. The Union of India & Another, M/s Mateshwari Minerals & Another Vs. Union of India & Another, and M/s Shivalik Silica Vs. Union of India & Others, all of which dismissed the challenge to GST on royalty. The court concluded that it was bound by these precedents and dismissed the petitions challenging the GST on royalty.

2. Constitutionality of Sections 9, 15, 50, 73, and 74 of the CGST Act of 2017/RGST Act of 2017:
In D.B. Civil Writ Petition No. 9534/2022, the petitioners sought to declare Sections 9 and 15 of the CGST Act of 2017/RGST Act of 2017 as unconstitutional for levying GST on a reverse charge basis on the royalty of mining extraction. They also challenged Sections 50, 73, and 74 of the CGST Act of 2017/RGST Act of 2017 for imposing interest and penalties on non-payment of tax under Sections 9 and 15. The court did not specifically address the constitutionality of these sections in detail but dismissed the petitions based on the established precedent upholding the GST on royalty.

3. Taxability on the Grant of Mining Rights under GST Law:
In D.B. Civil Writ Petition No. 8109/2022 and No. 6391/2022, the petitioners challenged Circular No. 164/20/2021-GST dated 06.10.2021 and sought to read down Entry No. 5 of Notification No. 13/2017-CT(Rate) dated 28.06.2017, arguing that the grant of mineral exploration and mining rights should not be considered a supply of services under GST law. The court upheld the taxability of mining rights under GST law, referencing previous decisions that supported this interpretation.

4. GST Applicability on Mining Royalty/Dead Rent and Contributions to DMFT/RSMET:
In D.B. Civil Writ Petition No. 5199/2022, the petitioners sought a declaration that GST is not leviable on mining royalty/dead rent and contributions to DMFT/RSMET. They also challenged Circular No. 192/02/2016-Service Tax dated 13.04.2016 regarding the applicability of service tax on mining royalty/dead rent. The court dismissed the challenge to the GST on royalty but noted that the petition would survive adjudication only in respect of other reliefs sought, implying that the issue of contributions to DMFT/RSMET was not conclusively addressed in this judgment.

5. Classification of Royalty under GST Notifications:
The petitioners alternatively sought to classify royalty under Entry 17(iii) of Notification dated 28.06.2017, arguing that GST on royalty should be levied at 5%, as applicable to the supply of goods involving the transfer of goods. The court did not specifically address this classification argument but dismissed the petitions based on the established precedent upholding the GST on royalty.

Conclusion:
The court dismissed D.B. Civil Writ Petition Nos. 8109/2022, 6391/2022, and 9534/2022, upholding the imposition of GST on royalty based on consistent past decisions. D.B. Civil Writ Petition No. 5199/2022 was partially dismissed, with the challenge to the GST on royalty rejected, but the petition was allowed to proceed concerning other reliefs sought. The court emphasized that final orders from Coordinate Benches take precedence over interim orders, reaffirming the legality of GST on royalty.

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