service tax on sub lease of minor minerals

[jagadesh kumar bhojanapalli Kumar]

We are having X Joint Venture Company ( 100% EOU) in process of Granite Blocks & Granite slabs (sub lease given by the Corporation under special project and also state govt corporation is having 11% share). The X company is paying Royalty & other charges is as per Agreement.

We would like to know the service tax is applicable or not on sub lease of minor mineral lease after 1.7.2012

thanks

jagadesh kumar

[Rajagopalan Ranganathan]

Sir,

Normally service tax is payable on royalty charges under 'Intellectual Property Service'. In your query I would like to know to whom you are paying royalty?

[jagadesh kumar bhojanapalli Kumar]

We are paying royalty charges to Mineral Development Corporation

[Rajagopalan Ranganathan]

Sir,

According to Section 66 E (c) of Finance Act, 1994 temporary transfer or permitting the use or enjoyment of any intellectual property right is declared service. You are paying royalty to Mineral Development Corporation for the purpose mining of minerals. In my opinion such payment of royalty will not attract service tax since what you pay as royalty is in the nature of licensing fee. Hence in my opinion you need not pay service tax on such royalty. Moreover since royalty amount is received by Mineral Development Corporation only they have to pay the service tax if leviable since such corporation cannot be equated to Government, local authority etc.

AI Summary

Intellectual property service: royalty for mineral sub lease treated as licensing fee and unlikely to attract service tax.
Royalty payments made to a mineral development corporation for the purpose of mining are treated as licensing fees for extraction rights and, in the advisor's view, do not attract service tax as an intellectual property service; if service tax is found leviable, the recipient corporation would bear the liability.