GST Complaince for Selling Natural river sand

[Komal Agarwal]

Dear Experts,

I am engaged in the business of mining and selling natural river sand. The mining is carried out from a riverbed under a lease granted by the government, for which I pay royalty or seigniorage charges.

The sand is sold in its natural form (without any processing or packaging) directly to end consumers or stockists (trader of sand) mainly for use in construction.

I seek clarification on the following points:

GST on Sale of Sand:

Is GST applicable on the sale of natural river sand to consumers? If yes, what is the applicable GST rate and HSN code for such supply?

GST on Royalty Paid to Government:

As the lease is taken from the government and royalty is paid, is GST applicable on this royalty under the Reverse Charge Mechanism (RCM)? If so, what is the applicable rate?

Input Tax Credit (ITC):

If GST is paid under RCM on the royalty, can the same be claimed as Input Tax Credit against the GST charged on outward supply (i.e., sale of sand)?

Exemption, if any:

Are there any exemptions available either for the sale of natural river sand or for the royalty paid to the government for mining rights?

[Sadanand Bulbule]

 Sale of natural river sand is taxable  @ 5% GST under HSN 2505.

 Royalty to Government: GST @ 18% under RCM.

 ITC of GST paid under RCM on royalty is admissible and can be set-off against GST on sand sales. 

No exemption exists on either transaction.

[KALLESHAMURTHY MURTHY K.N.]

Sir, 

I fully agree with the answer of Sri Sadananda Bulbule Sir.

Sand: Tax rate 5%, no classification as to river sand or natural sand and even M sand, both are taxable. 

Royalty: Honble Supreme Court has finally passed the Judgement as the Royalty paid is not a tax but a supply.  It has also waived for all the assessees, the levy of interest and penalty on demands made for the period before 25.7.2024. (This applies to the cases already levied.)

As per Entry No. 17(ii) of Notification No. 11/2017 dated 28-06-2017 under heading 9973 attracts GST @18 %.

As per Notification 13/2017 dt.28-06-2017 dated 28-06-2025, tax payable on Royalty charges under RCM can be claimed as ITC.

[Shilpi Jain]

You have an inverted duty structure of which you cannot claim refund also. So effectively a huge amount of the Royalty ITC is becoming a cost.

There is a posssible view that no GST is payable on royalty though this is an issue which will have to settle in Courts.

If the amount involved in your case is high you can consider taking professional help regarding way forward to reduce your GST costs.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sir/ Madam,

The issue of tax liability on "Royalty" has been settled.

The majority of the 9 Judges Bench decision of Hon’ble SC inter alia vide Para 94 to 100; 123 to 130, in the case of M/s Mineral Area Development Authority vs. Steel Authority of India - 2024 (7) TMI 1390 - Supreme Court (LB) held after noting the divergence between India Cement - 1989 (10) TMI 53 - Supreme Court and Kesoram cases - 2004 (1) TMI 71 - Supreme Court, that royalty does not meet the characteristic requirements of a tax, as a royalty is a consideration paid by a mining lessee to the lessor for enjoyment of mineral rights.

AI Summary

GST on royalty and sand sales: royalty treated as taxable supply under reverse charge with ITC available. Sale of natural river sand in unprocessed form is taxable as a mineral supply under the applicable HSN and attracts GST. Royalty paid to the government for mining rights is treated as consideration for mineral rights and attracts GST under the Reverse Charge Mechanism; GST paid under RCM on royalty is admissible as Input Tax Credit and can be set off against GST on sand sales. No exemption for the sale of sand or for royalty payments is indicated in the guidance.