2024 (6) TMI 1236 - HC - GST

Sand Extraction Royalty Deemed Tax, Not Service Charge, Blocking 18% GST Levy on Mineral Rights

HC ruled against Mining Department's 18% GST demand on sand extraction royalty. Court held royalty is a tax, not a service consideration, citing Supreme ... Levy of GST - royalty to be paid by the petitioners, on extraction of sand, for which an agreement has been entered into by the petitioners and the State through the Mining Department - HELD THAT:- When royalty has been declared to be a tax by a Seven-Judge Bench, as of now the same cannot be deemed to be a consideration for service of grant of licence. In any event, it is seen that the impugned orders are based on an advance ruling under the Bihar Goods and Services Tax Act, 2017 which is also said to be challenged in CWJC No. 3531 of 2022. Post on 30.01.2024 along with CWJC No. 3531 of 2022. Issues Involved:1. Impugned demand by Mining Department for 18% GST on royalty for sand extraction.2. Interpretation of royalty as consideration for service of grant of license.3. Legal precedents on royalty as tax and consideration for service.4. Impact of interim orders and stay granted by higher courts.5. Challenge to advance ruling under Bihar Goods and Services Tax Act, 2017.Analysis:1. The judgment dealt with the demand made by the Mining Department for the deposit of 18% GST on royalty to be paid by the petitioners for sand extraction. The demand was based on the premise that the royalty paid is considered as a consideration for the service provided by the State in granting a license for sand extraction.2. The petitioners relied on various court orders, including those from the Supreme Court and High Court, to argue against the demand. They contended that royalty should be categorized as a tax, not a consideration for the service of granting a license. The petitioners referred to a Nine-Judge Bench decision that holds the field, emphasizing that the Supreme Court has granted a stay order in a related case.3. The judgment discussed the legal position established in the India Cement Ltd. case, which categorically held that royalty is a tax. The petitioners argued that based on this precedent, royalty cannot be considered as a payment for the service of granting a license for sand extraction. The court noted the interim order in a specific case and highlighted the evolving definition of 'service' as 'anything other than sale of goods'.4. The Advocate General contended that the interim orders were issued under the previous regime and pointed out instances where interim stays were refused. The court acknowledged the Advocate General's submission but expressed a prima facie opinion that royalty, declared as a tax by a Seven-Judge Bench, cannot be construed as consideration for the service of granting a license.5. Lastly, the judgment addressed the challenge to an advance ruling under the Bihar Goods and Services Tax Act, 2017, which was said to be pending in a separate case. The court decided to post all related cases, including the challenge to the advance ruling, on the same date for further proceedings. It directed the State to file counter affidavits to expedite the final disposal of the matters.In conclusion, the judgment provided a detailed analysis of the issues surrounding the demand for GST on royalty for sand extraction, considering legal precedents, interim orders, and the evolving definition of 'service'. The decision to consolidate related cases and expedite proceedings demonstrated the court's intention to address the matter comprehensively and efficiently.