2024 (2) TMI 488 - HC - GST

Madras HC disposes GST on mining royalty petitions, awaits Nine Judge Constitution Bench decision on royalty taxation

The Madras HC disposed of petitions challenging GST levy on mining lease royalty. The court noted ongoing controversy over taxing royalty since Finance ... Levy of Goods and Services Tax on royalty/seigniorage - taxable event of 'supply' under GST - nature of royalty (tax or not) - adjudication and interim suspension pending higher constitutional determinationNature of royalty (tax or not) - levy of Goods and Services Tax on royalty/seigniorage - Whether recovery of GST on royalty/seigniorage should be permitted to proceed pending the decision of the Nine Judge Constitution Bench on the nature of royalty. - HELD THAT: - The writ petitions challenge imposition of GST on royalty/seigniorage, raising the foundational question whether royalty constitutes a 'service' (taxable 'supply') or is a tax. The court recorded that divergent views exist in Supreme Court precedent and that the matter is pending before a Nine Judge Constitution Bench which has framed questions on the true nature of royalty. In view of the substantial and dispositive character of that reference and the interim protection granted by the Supreme Court in related proceedings, the High Court directed that there shall be no recovery of GST on royalty until the Constitution Bench decides the issue. This preserves the parties' positions without adjudicating the substantive question on merits, which is left for the higher forum to resolve. [Paras 8, 9]No recovery of GST on royalty/seigniorage shall be made until the Nine Judge Constitution Bench decides the nature of royalty.Adjudication and interim suspension pending higher constitutional determination - procedure for objections to show cause notices - How authorities should proceed with pending show cause notices and adjudication in cases where petitioners challenge levy of GST on royalty. - HELD THAT: - For petitions challenging show cause notices the court directed petitioners to file objections/representations within four weeks of receipt of the order. Upon receipt, the authorities are to proceed with adjudication on merits, after affording a reasonable opportunity of hearing. However, any orders of adjudication are to be kept in abeyance until the Nine Judge Constitution Bench decides the issue on the nature of royalty. Thus adjudicatory proceedings are to be conducted but execution/recovery is stayed pending the higher court's decision. [Paras 9]Petitioners to submit objections; authorities to adjudicate on merits but keep adjudication orders in abeyance until the Constitution Bench decides the nature of royalty.Challenge to classification notifications and administrative circulars - preservation of contentions for later proceedings - Whether challenges to the impugned notification and CBIC circular are to be finally decided in these petitions. - HELD THAT: - The court declined to decide the validity of the notification and the CBIC circular at this stage, observing that their fate is materially linked to the outcome of the Nine Judge Constitution Bench reference. Petitioners are permitted to act upon the notification and circular after the Constitution Bench delivers its decision, and all contentions are left open to be raised in appropriate proceedings thereafter. No adjudication on the merits of those instruments was undertaken by the High Court. [Paras 5, 9]Challenges to the notification and circular are left open; petitioners may proceed after the Constitution Bench decision and may raise all contentions in appropriate proceedings.Final Conclusion: Writ petitions disposed by interim directions: petitioners to file objections to show cause notices; authorities to adjudicate on merits but keep orders and any recovery of GST on royalty/seigniorage in abeyance until the Nine Judge Constitution Bench determines the nature of royalty; challenges to the notification and circular left open for decision after the Constitution Bench's judgment. Issues involved:The judgment involves challenges related to the vires of G.O.Ms.No.72 dated 29.06.2017, Circular No.164/20/2021-GST, show cause notices proposing Goods and Service Tax on Mining Lease/Royalty, and adjudication orders levying/demanding Goods and Service Tax on Mining Lease/Royalty.Challenging the vires of Entry 17 (viii) of G.O.Ms.No.72:The petitioners were allowed quarrying operations on payment of seigniorage charges for Mining Lease. The issue revolved around the levy of Goods and Service Tax on royalty/seigniorage fee collected by the Government. The challenge was based on the Notification no.11/2017 - Central Tax (Rate) dated 28.06.2017, which referred to licensing services for the right to use minerals, including its exploration and evaluation. The validity of this notification was under scrutiny.Challenge to Circular No.164/20/2021-GST:The Central Board of Indirect Taxes and Customs issued a circular clarifying the tax rate on royalty as 18% even before G.O.Ms.No.72. The circular was challenged for being contrary to the Entry. The Circular referred to the 45th GST Council Meeting and conflicting rulings of the Authority for Advance Ruling, choosing to apply a higher tax rate even for the period before 1st January 2019.Challenge to show cause notices and adjudication orders:The primary ground for levying Goods and Service Tax on royalty/seigniorage fee was disputed, arguing that royalty is a 'tax' and not a representation of 'services'. Divergent views on the nature of royalty were highlighted, with reference to past judgments and a pending case before a Constitution Bench of Nine Judges. The judgment discussed the questions framed by the Constitution Bench regarding the nature of royalty and tax on land under different entries.Judgment:The Court directed the petitioners to submit objections within four weeks in cases challenging show cause notices. Adjudication orders were to be kept in abeyance until the Nine Judge Constitution Bench decides on the nature of royalty. No recovery of GST on royalty was allowed until the Constitution Bench's decision. The petitioners were given the option to act upon the outcome of the pending case. All contentions were left open for the petitioners to raise in appropriate proceedings post the Constitution Bench's decision. The batch of writ petitions was disposed of with no costs, and connected miscellaneous petitions were closed.