RCM APPLICABLE ON GOVT ROYAL SEIGNIORAGE

[RV PERUMAL]

SIR,

ONE OF THE ASSESSEE ( HIGH WAYS CONTRACTOR) ENTERED INTO AN AGREEMENT WITH GEOLOGY AND MINING DEPARTMENT FOR ROAD LAYING STONES. FOR THIS, THE ASSESSEE HAS NOT PAID REVERSE CHARGE MECHANISM UNDER SERVICE TAX. NOW THE DEPARTMENT DGGI HAS ISSUED AN SCN AND ASKED TO PAY THE SERVICE TAX FROM 2016-17 & 2017-18.

KINDLY ADVICE, WHETHER HE HAS TO PAY THE TAX OR ANY OTHER RELIEF

[YAGAY andSUN]

Please clear the facts for enabling us to revert.

[RV PERUMAL]

THE DEALER IS HIGH WAYS / NATIONAL HIGH WAYS ROAD CONTRACTOR. FOR LAYING THE ROADS, HE ENTERED WITH STATE GEOLOGY, MINING DEPARTMENT FOR STONES, JELLY. HE PAID SOME AMOUNT AS A ROYALTY TO THE STATE GOVT FOR PROCURING THE STONES. NOW, THE DEPARTMENTS ASKED TO PAY THE ROYAL FEES UNDER RCM.I REMEMBER SOME JUDGMENTS OR AAR FROM ODISHA, STATING THAT RCM DOES NOT APPLICABLE TO MINING DEPT. BUT IT'S NOT CLEAR AND NOT RECALL IT. SO PLEASE ADVISE WHETHER RCM ON ROYALTY TO GOVT ATTRACTS RCM OR NOT

[KASTURI SETHI]

To pick holes in the SCN, either a copy of SCN or contents of SCN are required.

[ABHISHEK TRIPATHI]

Dear RV Perumal Ji,

Facts: The querist is in the business of road construction for Highways/National Highways. For executing such construction and to fill sub-base, querist requires granular material. In the instant case, granular materials are the crushed stones. On the payment of royalty, the querist procures such stones from the State Geology, Mining Department.

The querist has not paid Service Tax on reverse charge on the royalty paid to the state government. Now, the department has issued SCN demanding ST on RCM on the royalty for 2016-17 and 2017-18 (till June ‘17).

Issue: ST is leviable on the royalty paid to the state/central government.

View: It has been contentious since 2016. Refer Udaipur Chambers of Commerce, 2017 (10) TMI 975 - RAJASTHAN HIGH COURT (pending before Hon’ble SC). Assessee side contention is that royalty paid on mineral rights under MMDR is not a consideration and thus ST cannot be levied on such an amount. Udaipur Chambers (supra) is in the favour of the department.

Industry is contesting the levy of ST on royalty.

You may consider challenging the NN 6/2016 - ST (read down) on the following determination:

Whether royalty is a consideration?

Whether royalty is a tax?

Whether ‘Any Services’ under NN 6/2016-ST will cover your case?

P.S.: You may expect FY 2017-18, 2018-19, 2020-21 SCN under GST also.

[ABHISHEK TRIPATHI]

In addition to the above:

You may reply the SCN on those determined question

Or

Approach the Hon'ble High Court under the writ jurisdiction.

If you are not discharging GST on such royalty then department will come with full force to extract Tax, Interest and Penalty starting from 2016 till day. So, if you think the determined question are in your favor and ST/GST is not payable then challenge it.

[ABHISHEK TRIPATHI]

*Correction - removal of 'till day'.

[Rajagopalan Ranganathan]

Sir,

I want to know whether you are paying separate amount for procuring ROAD LAYING STONES in addition to royalty. If you pay royalty alone then it will be considered as a consideration as in case of transfer technology by a foreign company to any Indian Company or subsidiary of the foreign company located in India. I feel the SCN should have issued on the above mentioned premises.

[KASTURI SETHI]

There is no doubt about taxablity. Challenging constitutional validity is not a cake walk. It is an uphill task. It involves a huge amount of money, time and energy. In addition to this, stress and tension will also tell upon. Better option is to pay ST along with interest and 15% penalty "Under Protest" under proper procedure and thus save 85% penalty at present. The ball is already in the Supreme Court . In case the issue is decided in favour of the assessee/petitioner, you will get refund of all amount paid.

[KASTURI SETHI]

Exhaust departmental channel first, in case you intend to fight the case. I am all praise for the reply of Sh.Abhishek Tripathi, Sir. His knowledge, interpretation, penetration into the issue and analysis are par excellence. With his comprehensive reply, all aspects stand opened.

[RV PERUMAL]

THANK YOU ALL FOR A WONDERFUL GUIDANCE, I PASS THE CONTENT OF THE MESSAGE TO THE ASSESSEE AND ASKED TO TAKE A DECISION AT THE EARLIEST WHETHER HE HAS TO PAY THE TAX OR APPEAL.

ONCE AGAIN, THANK YOU ALL

[KASTURI SETHI]

SH. RV PERUMAL JI,

TMI deserves a huge thanks. Experts provide guidance/advice under the auspices of TMI.

[Ganeshan Kalyani]

I am thankful to TMI for facilitating this platform where I am able to learn from experts and querist.

AI Summary

Royalty payments to government: potential service tax reverse charge exposure, consider challenge or pay under protest to limit penalty. Whether service tax under the reverse charge mechanism applies to royalty paid to a State Geology/Mining Department for procurement of crushed stones is contested. The department issued a show cause notice seeking service tax for certain years. Core legal questions are whether such royalty constitutes consideration, whether it is a tax, and whether the scope of taxable 'any services' covers payments to government mining departments. Advised options include contesting the notification, exhausting departmental remedies, approaching the High Court, or paying under protest to limit penalty exposure.