Reverse charge service tax on mining royalty payments held unsustainable where government services fell outside the taxable regime.

Service tax under reverse charge on royalty, DMF and NMET paid to a State Government for mining rights was held not leviable, as the payments were treated as consideration for grant of mining rights rather than a taxable service. The Tribunal followed its earlier view that such government-related receipts fell within the negative list or otherwise outside the taxable service regime for the relevant period, and noted that the taxable event must exist when the service is provided or agreed to be provided. It also held that a contrary circular could not override the judicial position. The demand and consequential confirmation were set aside.

---

---

Issues: Whether service tax was payable under reverse charge mechanism on royalty, DMF and NMET paid to the State Government for mining rights, and whether the demand could survive for the period in question.

Analysis: The dispute concerned payments made for extraction of minerals under a mining lease, with the assessee contending that the amounts paid were not consideration for a taxable service. The Tribunal applied its earlier decision on the same issue, where it had been held that the levy on royalty and allied payments for grant of mining rights was unsustainable. It noted that the taxable event must exist when the service is provided or agreed to be provided, and that services by Government were covered by the negative list prior to 01.04.2016, subject to specified exceptions. The Tribunal further treated the later precedent as affirmed by the Supreme Court, and held that the contrary circular could not prevail over the judicial position.

Conclusion: The demand of service tax on royalty, DMF and NMET under reverse charge mechanism was not sustainable and was set aside.

Final Conclusion: The assessee succeeded, and the impugned demand and consequential confirmation were annulled.

Ratio Decidendi: Payments of royalty and allied mining charges made to the State Government for grant of mining rights were not liable to service tax under reverse charge where the governing legal position placed such government services within the negative list or otherwise outside the taxable service regime.

---