Royalty under a mining lease is regulatory, not taxable service consideration; service tax demand on the payment was unsustainable.

Royalty paid under a mining lease for exploration and production of crude oil and natural gas was treated as a statutory, regulatory payment linked to mineral extraction, not as contractual consideration for an identified taxable service. The demand notice's reliance on the right-to-use theory and the 2016 exemption framework was rejected because an exemption notification cannot create a levy where the charging provision does not support it. On this reasoning, service tax on the royalty was held unsustainable and the demand was set aside.

---

---

Issues: Whether royalty paid under the mining lease for exploration and production of crude oil and natural gas was consideration for a taxable service, and whether service tax could be demanded on such royalty for the period in question.

Analysis: The royalty arose under a statutory regime governing oilfields and was linked to the quantity and value of mineral oil extracted. The payment was treated as predominantly regulatory in nature rather than as contractual consideration for an identified service. The document granted by the Government was a mining lease and not an assignment of right to use in the sense invoked by the demand notice. The demand also attempted to rest on the exemption framework introduced by the 2016 notification, but an exemption notification cannot create a levy where the charging provision does not sustain it. In light of the binding view that royalty is not consideration for services, the demand of service tax on royalty could not be maintained.

Conclusion: The demand of service tax on royalty was unsustainable and was set aside; the appeal was allowed in favour of the assessee.

---