GST ON ROYALTY UNDER RCM

[Sadanand Bulbule]

Dear experts

It is admitted fact that GST on royalty is to be paid under RCM by Mining Lease holders. However in few districts of Karnataka, mining activities have been fully controlled by the Monitoring Committee appointed by the Hon'ble Supreme Court. As such they are under the obligation to strictly follow the terms and conditions imposed by such committee. One of the conditions is such mining lease holders have to pay Royalty, Forest Development Cess and GST directly to the committee and in turn it would remit it to the respective Government departments.

The question is since the mining lease holders have already paid GST on royalty under 'Forward charge mechanism [FCM]', the GST Authorities are fastening once again tax liabiIity under RCM despite bringing to their knowledge the said legal position.

What is the remedy for such double liability? Explore the solutions.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sir,

In my humble opinion, the royalty Charges on mines and minerals attract GST in two ways.

1. (I am discussing on Quarry extraction – sale of Materials and Services received from Govt.))

One is on sale of mines & minerals extracted and evaluated since the Royalty Charges is includible in the sale value as per Sec. 15 under FCM covered by the HSN Code 2516 taxable @5%.

Secondly, for the services received from the Government as per Notification 13/2017 dt.28-06-2017, the liability to pay tax gets transferred to the recipient “Lease License Holder” for such services under RCM as the services for right to use minerals including exploration and evaluation are provided by the Stale Government covered by heading 9973, attracting GST rate @18 % as prescribed in Entry No. 17(ii) of Notification No. 11/2017 dated 28-06-2017.

The rate of tax paid may not be the same on two occasions.

2. There is one theory raised on account of the following Judgement.

The Hon’ble Supreme Court in the case of Mineral Area Development Authority v. Steel Authority of India - 2024 (8) TMI 956 - SUPREME COURT (LB), held on ‘Royalty’ as under;

i. The Royalty is not a tax. It is a consideration paid by a mining lessee to the lessor in terms of the Lease Deed, for the enjoyment of mineral rights.

ii) A “Lease” connotes a transfer of a right of enjoyment in immovable property for a certain time in lieu of consideration. 105 of the Transfer of Property Act-1882 defines a lease of immovable property as a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity.

iii) Upon payment of Royalty, a mineral excavated from the Leased Mine is a benefit arising out of land, which is an Immovable Property.

In view of the ratio of the above judgement the Royalty paid for the enjoyment of mineral rights has been held to be a part of Immovable Property, on which the State Govt. has the power to levy Tax only under the authority of Law since Article 265, Constitution of India states that; “No tax shall be levied or collected except by authority of law”

GST Act has not granted any authority to the Govt. to levy GST on Immovable Property.

3. As per Judgement, the interest gets waived for all the assessees for the tax paid on Royalty before 25-07-2024.

More clarification is expected from all the learned persons.

[Manoj Thakur]

This is not the first example of some revenue officer somewhere issuing a demand notice despite an apex court ruling. Hence it needs to be replied quoting the same, concluding that tax liability is already discharged.

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, The department is legally incorrect.

If GST has been paid under FCM (though may be payable under RCM), GST cannot be demanded again under RCM on the same transaction from the same party and for the same period. The case laws are available to this effect.

Whether SCN has been issued or not ?

[Sadanand Bulbule]

Sir, final order under Section 74 has been passed despite explaining everything related to this double liability. This is the mockery and abuse of power. 

“One nation, double tax” is the new tagline of the GST regime. Literally honest taxpayers are financially murdered this way. And unfortunately Government sponsors such illegal orders. Who is to bell the tiger? (cat is no more in the picture) 

[Manoj Thakur]

Unfortunately these things happen in many other areas in taxation. Option is Appeal, if second appeal; may take little time.

[Sadanand Bulbule]

Sir, every legal remedy has its own unexplainable cost. Sometimes remedy is worse than the disease. 

[Sadanand Bulbule]

The GST Authorities should avoid the avoidable litigation and stop disruption of business to save time,energy and money.

[KASTURI SETHI]

Sh.Sadanand  Bulbule Ji,

Sir, This is with reference to your reply at serial no.4 above. This is not the end of the road. In addition to filing appeal, make a representation to the Chairman GST Council. A copy of the appeal filed should also be attached,

[Sadanand Bulbule]

Dear Sir

I am exploring to file writ petition in the State High Court. By and large the Appellate Authorities are mentally extended adjudicating authorities.Hardly I found enough guts in them to appreciate merits and allow appeal. Secondly out of fear of their " bosses", they are dismissing the appeals for no justifiable reasons, unless they are "personally interested". For them disposal of appeal is just a routine administrative job rather than quasi-judicial function. This is the height of disruption of justice.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sirs,

Tax payable on Royalty twice for the same transaction is unconstitutional. Sri Sadanad Bulbule Sir rightly raised the question. The suggestion of learned Kasthuri Sethi Ji at sl. No. (8) is very essential. 

[Manoj Thakur]

Then tax paid twice on housing society redevelopment by a builder developer also is. Please stop it if you can.

[Sadanand Bulbule]

Why Sir? If discussion is not palatable, experts need not advise to stop further exchange of thoughts. Better they can afford to maintain divine silence. Only TMI can advise.

[Manoj Thakur]

Not at all intended Sir. I mentioned in the context of the preceding comment on royalty because that's another double taxation going on for 6 and more years. 

[KALLESHAMURTHY MURTHY K.N.]

Manoj Thakur Sir, 

Please explain how there is double taxation on housing society redevelopment by a builder.

[Manoj Thakur]

The cost of construction of free flats for the old existing society members is always factored in the flats sold to the new independent buyers and hence, tax is already paid on the said value of construction services. Hence, to impose a tax on the area allotted free of cost to the existing members would result in double taxation. This has happened in umpteen housing societies.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sir, 

Your issue is not clearly explained.

The flats sold to new independent members do not attract GST being immovable property. Then, where is double taxation? 

[Manoj Thakur]

All payments received by developer from new independent buyers before building completion certificate received or occupancy date whichever is earlier, are taxable. Thats the law if you wish to check out.

[KALLESHAMURTHY MURTHY K.N.]

Sir, 

It is the law you were explaining. However, the occasion of double taxation is not pointed out. 

[Manoj Thakur]

Taxing the existing members for free area given to them by the developer in exchange for their society membership.

[Manoj Thakur]

Because The flats sold to new independent members do not attract GST being immovable property in reply 17 above is not correct for amounts received by developer from other buyers before occupancy/CC

AI Summary

GST on royalty: double charging under forward and reverse mechanisms raises challenge to validity and remedies are available. Royalty on minerals may be taxed twice: as part of sale value under the forward charge mechanism and under reverse charge for government services granting right to use minerals. An apex-court ratio described royalty as consideration tied to immovable property and led to an interest waiver for taxes paid on royalty before a cutoff. Recommended remedies include contesting notices by citing the judgment, pursuing statutory appeals or writs, and making representations to the GST Council; questions remain about claiming input tax credit for RCM-paid royalty.