Allahabad High Court stays payment of GST for grant of mining lease/royalty

Amorous Trading India Private Limited Vs State of U.P. (Allahabad High Court)

The Allahabad High Court recently made a significant decision regarding the payment of Goods and Services Tax (GST) for mining lease and royalty. In this article, we will delve into the details of the case “Amorous Trading India Private Limited Vs State of U.P.” and the implications of the court’s decision.

Detailed Analysis:

1. Nature of Royalty Payment: The crux of the petitioner’s argument was that royalty payment is not a consideration for goods or services but rather a tax. This distinction is vital in determining whether GST is applicable. They relied on the India Cement Ltd. case, where the Supreme Court had previously opined that royalty payment is akin to tax.
2. Supreme Court Precedent: The India Cement Ltd. case is a Constitution Bench decision, which carries substantial legal weight. It establishes the precedent that royalty can be considered a form of tax. This precedent strengthens the petitioner’s argument against the applicability of GST on royalty payments.
3. Ongoing Supreme Court Case: The article also highlights an ongoing case in the Supreme Court, “M/s Lakhwinder Singh vs. Union of India & Ors.”, which deals with a similar controversy regarding GST on mining lease/royalty. The fact that the Supreme Court has stayed GST payment in a related matter suggests that this is a matter of significant legal interest.
4. Allahabad High Court’s Stay Order: The Allahabad High Court, in the present case, took cognizance of the nature of royalty payments and its possible resemblance to tax. As a result, the court stayed the payment of GST for grant of mining lease/royalty by the petitioner until further orders. This stay order has immediate implications for the petitioner and sets a precedent for similar cases.

Conclusion: The Allahabad High Court’s decision to stay GST payment for mining lease/royalty is a significant development in the taxation landscape. It raises questions about the nature of royalty payments and whether they should be subject to GST. The reliance on the India Cement Ltd. case and the ongoing Supreme Court case adds depth to the legal debate. As this matter unfolds, it will be interesting to see how the courts ultimately interpret the taxation of royalty in the context of mining leases.

FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT

1. Heard Sri Shubham Agrawal, learned counsel for the petitioner and Sri Krishna Agrawal, learned counsel for the revenue.

2. Upon the matter being taken up, learned counsel for the petitioner has vehemently urged that the royalty payment is tax and not consideration in the context of the privilege parted by the State allowing the petitioner and others to mine sand. That being the nature of the payment made by the petitioner, the same is not amenable to GST as it is not consideration either for sale of goods or service provided.

3. Further reliance has been placed on a Constitution Bench decision of the Supreme Court in India Cement Ltd. and Others vs. State of Tamil Nadu and Others (1990) 1 SCC 12, wherein, nature of royalty payment was considered and it was opined to be in the nature of tax, (in paragraph 34 of the report).

4. Also, it has been shown that a similar controversy is engaging the attention of the Supreme Court in M/s Lakhwinder Singh vs. Union of India & Ors. in Writ Petition (Civil) No. 1076 of 2021. On 04.10.2021, the Supreme Court has passed the below quoted order:-

“1. Issue notice.

2. Tag with SLP(C) No 37326 of 2017.

3. Until further orders, payment of GST for grant of mining lease/royalty by the petitioner shall remain stayed.”

5. Connect and list with Writ Tax No. 475 of 2021.

6. Until further orders, payment of GST for grant of mining lease/royalty by the petitioner shall remain stayed.