Mining royalty tax requires proof of a granted licence; balance-sheet entries alone do not justify service tax levy.

Royalty on minerals is treated as taxable consideration for a mining-related service only where a mining right or licence has actually been granted and the royalty is shown to be paid for that licence. On the stated facts, the amounts were explained as sums withheld by State works authorities pending compliance documentation, not as royalty for any mining licence, so no service tax liability under reverse charge was established. The demand was also found unsupported by corroborative evidence, since it rested mainly on balance-sheet entries, and extended limitation was not justified in the absence of proof of suppression or wilful misstatement. The impugned demands were therefore unsustainable on both merits and limitation.

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Issues: (i) whether the amounts shown as royalty on mineral, in the factual context of withheld bill amounts and purchase from licensed vendors, constituted consideration for a taxable service liable to service tax under reverse charge mechanism; (ii) whether the demands were sustainable in the absence of corroborative evidence and in view of limitation.

Issue (i): whether the amounts shown as royalty on mineral, in the factual context of withheld bill amounts and purchase from licensed vendors, constituted consideration for a taxable service liable to service tax under reverse charge mechanism

Analysis: Royalty for mining rights became taxable after the amendment to section 66D of the Finance Act, 1994 with effect from 01.04.2016, but liability arises only where a mining right or licence is actually granted and royalty is paid for that licence. The appellants' evidence showed that they had not been granted mining rights; the amounts reflected in the balance sheet represented sums withheld by the State works authorities until Form M and Form N were furnished, in terms of Rule 40(10) of the Bihar Minor Mineral Concession Rules, 1972. The documentary material supported the explanation that the amounts were not royalty paid for any mining licence.

Conclusion: The disputed amounts were not proved to be taxable royalty for a mining licence, and no service tax liability under reverse charge was made out.

Issue (ii): whether the demands were sustainable in the absence of corroborative evidence and in view of limitation

Analysis: The demand was founded on balance-sheet entries without independent verification or evidence of any taxable service, licence, or return filings showing mining royalty payment. The Tribunal treated this as insufficient to sustain the levy and also accepted the plea that the appellants had a bona fide belief that no tax was payable. On limitation, the show cause notices were based on disclosed accounting entries and the Revenue failed to establish suppression or wilful misstatement with supporting evidence, so invocation of the extended period was not justified.

Conclusion: The demands were barred by limitation and were also unsustainable for want of corroborative evidence.

Final Conclusion: The impugned orders were set aside and the appeals were allowed, with consequential relief as admissible in law.

Ratio Decidendi: Service tax on royalty related to mining rights can be sustained only when the existence of a granted mining licence and the taxable consideration are established by evidence; mere balance-sheet entries, without corroboration, do not justify levy or extended limitation.

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