Pre-2016 mining lease payments were outside service tax net, as later payment could not create reverse charge liability.

Service tax was not leviable on royalty, DMF, NMET and user fee paid under a mining lease executed before 01.04.2016, because taxability of the assignment of the right to use natural resources depends on the date of the underlying transaction, not the later date of payment. The levy on such government services to business entities entered the service tax net only from 01.04.2016, and the corresponding reverse charge machinery could not create liability where none existed when the lease was executed. The demand and penalties were therefore unsustainable.

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Issues: Whether service tax under reverse charge was leviable on royalty, DMF, NMET and user fee paid for a mining lease executed before 01.04.2016, where the payments were made after the amendment bringing government services to business entities within tax net.

Analysis: The mining lease was executed on 17.11.2009, when services by Government to business entities, other than specified exceptions, remained within the negative list under Section 66D of the Finance Act, 1994. The levy on assignment of the right to use natural resources was brought into the service tax net only from 01.04.2016 by the amendment to Section 66D(a)(iv), and reverse charge liability followed only from the corresponding amendment to Notification No. 30/2012-ST. The relevant levy depends on when the service was provided or agreed to be provided, and the machinery provisions governing payment cannot create tax liability where none existed on the date of the taxable event. The issue had already been settled in earlier Tribunal decisions, affirmed where applicable, holding that pre-01.04.2016 mining leases do not attract service tax merely because the consideration was paid later.

Conclusion: Service tax was not leviable on the impugned royalty and allied payments, and the demand and penalties could not be sustained.

Final Conclusion: The liability was held to be outside the service tax net because the mining lease and assignment of natural resources predated the relevant statutory change, though the payments were made thereafter.

Ratio Decidendi: Taxability of the assignment of the right to use natural resources is determined by the date of the underlying service transaction, and a subsequent statutory expansion of the service tax net does not apply to a lease executed before the levy came into force merely because consideration was paid later.

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