During the last 4 months, number of notices have been issued for payment of GST as well as intt./penalty on GST based on the fact that Govt. has power to levy tax per Supreme Court decision without understanding the ratio decidendi of Hon’ble Supreme Court and Basic Framework of Incidence of levy of GST under the GST Act.
The Hon’ble Supreme Court in the case of Mineral Area Development Authority v. Steel Authority of India (2024) 42 J.K.Jain’s GST & VR 70 (SC), 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 Lease Deed, for enjoyment of mineral rights.
ii) A “Lease” connotes a transfer of a right of enjoyment in immoveable property for a certain time in lieu of consideration. 105 of the Transfer of Property Act, 1882 defines a lease of immoveable 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 Immoveable Property.
In view of the above Ratio decidendi of the Hon’ble Supreme Court, the Royalty paid for enjoyment of mineral rights has been held to be a part of Immovable Property, on which the State Govt. has power to levy Tax only under the authority of Law since the Article 265, Constitution of India states that;
“No tax shall be levied or collected except by authority of law”
However, the GST Act has not granted any authority to the Govt. to levy GST on Immovable Property, since it falls outside the scope of ‘Supply’. The royalty amount paid for Mines is not the purchase price, or a sale price, of Goods/Rights liable to GST within the purview of GST. It was more in the nature of a lease amount, or the share of the owner in the produce, as the case may be and as per Ratio decidendi of the Hon’ble Supreme Court,
As such, the levy of GST on ‘Royalty on Mines’ is without any explicit authority to the Govt., under the GST Act and is therefore against the ratio decidendi of the Hon’ble Supreme Court as well as against the Article 265, Constitution of India.
Also read the detailed analysis given by CA Om Prakash Jain s/o J.K.Jain, on ratio decidendi of Hon’ble Supreme Court in the case of Mineral Area Development Authority v. Steel Authority of India (2024) 42 J.K.Jain’s GST & VR 70 (SC) as well as in the following Articles,
i)“Royalty ─ Whether liable to GST”, pub. in the magazine (2024) 42 J.K.Jain’s GST & VR, pages A-1 to A-4.
ii) “Royalty on Mines ─ Whether State has authority to levy GST ─ No authority under GST Act”, in the magazine (2024) 42 J.K.Jain’s GST & VR, pages A-9 to A-10.
The Analysis & the Articles are based on the Ratio decidendi of the above Hon’ble Supreme Court case decided on 25.7.2024 & on 14.8.2024 : (2024) 42 J.K.Jain’s GST & VR 89.
In the decision dated 14.8.2024, the Hon’ble Supreme Court has waived Intt. and penalty on demand prior to 25.7.2024 for All the Assessees of India.
Although, this case was instituted prior to implementation of GST Act, however due to confusion prevailed on the nature of Royalty, due to the Ratio decidendi of India Cement case (now overruled) of the Hon’ble Supreme Court, this relief has been given to All the Assessees of India.
Here it is worth mentioning that the Hon’ble Supreme Court has granted Stay on ‘Service Tax on Royalty on Mines’ on 11.1.2018 in the case of Udaipur Chamber of Commerce, which is still continuing.
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CA Om Prakash Jain s/o J.K.Jain, Jaipur-302004 | Tel No.9414300730/9462749040/01413584043
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