Royalty paid to Government-Mining

[vikash YADAV]

TP A has obtained lease hold rights from the Government (Collector/Mining Department) to excavate boulder stones. Entity B has entered into an agreement with A to crush these boulders into pebble stones and sell them to construction companies. Under the same agreement, Entity B is also paying the mining royalty to the Government on behalf of Entity A.

In this arrangement, which entity is liable to discharge GST on the mining royalty under the Reverse Charge Mechanism (RCM)?
As on date neither A nor B is paying the same.

[Shilpi Jain]

If you are looking at paying GST on this transaction then the person who has the lease license should pay under RCM.

[vikash YADAV]

Madam as per the agreement b/w A&B, Entity B is paying the mining royalty to the Government on behalf of Entity A.

In such a case, can the department ask Entity B to discharge GST liability under Reverse Charge Mechanism (RCM) on the royalty amount paid?

[Sadanand Bulbule]

Despite the Supreme Court judgement in MADA Case, the subject of levying GST under RCM on Mining Lease Holder is not yet finalised in veiw of the Rajasthan case pending before the Supreme Court. Till then it is only an exchange of personal opinions.

[YAGAY and SUN]

The issue concerns liability to discharge GST under the Reverse Charge Mechanism ("RCM") on mining royalty paid to the Government.

Legal Position

It is a settled position under the Central Goods and Services Tax Act, 2017 ("CGST Act") that:

• Grant of mining rights by the Government constitutes a supply of service classifiable under Heading 9973.
• Royalty paid for such rights is treated as consideration for the said supply.
• In terms of Entry No. 5 of Notification No. 13/2017-CT (Rate), services supplied by the Government to a business entity are taxable under RCM (mining services not being excluded).

Recipient of Service

Under Section 2(93) of the CGST Act, the recipient is the person liable to pay consideration.

• Entity A holds the mining lease and is statutorily obligated to pay royalty to the Government.
• Entity B, though paying royalty, does so on behalf of Entity A pursuant to a contractual arrangement and has no independent right or privity with the Government in respect of mining rights.

It is well established that payment by a third party does not alter the identity of the recipient.

RCM Liability

Accordingly:

• Entity A, being the lessee and recipient of the mining rights service, is liable to discharge GST under RCM on the royalty amount.
• Entity B does not assume RCM liability merely by making payment on behalf of Entity A.

Non-Compliance

Where GST is not discharged:

• Liability, along with interest and penalty, would arise against Entity A under Sections 73/74 and Section 50 of the CGST Act.

Conclusion

GST on mining royalty is payable under RCM by Entity A (the mining lease holder), and such liability is not shifted to Entity B merely because the royalty is paid by it on behalf of Entity A.

 

[KASTURI SETHI]

B (sub-contractor) is subordinate to Main Contractor (A). B works for and on behalf of the Main Contractor (A). A is to discharge GST liability under RCM and NOT B. .Here B is not Job-worker.

If any issue is pending with the Supreme Court, the department continues issuing show cause notices but does not adjudicate until and unless the issue is decided by the Apex Court. Such SCNs are transferred to call-book category.

[Sadanand Bulbule]

MADA judgment is under Mines and Minerals Act. In the case of Udaipur chamber of Commerce vs UOI and Lakhvinder Singh Vs UOI the stay granted by the honorable SC still continue as regards to levy of GST on Royalty paid by ML Holder.

So even if SCNs are issued by the Department proposing to levy GST under RCM on Royaly paid by Mining Lease Holder, noticees are advised to bring the above mentioned two cases to be on safer side.

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, I wholly concur with your views.

[Sadanand Bulbule]

Refer D-Forum ID No.120178 dated 25/06/2025

AI Summary

Reverse charge liability on mining royalty turns on who holds the mining lease, not who makes payment.
GST liability under reverse charge is discussed for royalty paid to the Government for mining rights. The commentary states that the grant of mining rights is treated as a supply of service, royalty is considered consideration for that supply, and the mining lease holder is the recipient liable to discharge GST even where another entity pays the royalty on its behalf. It also notes that third-party payment does not shift the reverse charge burden.