Case Law Details
Md. Israil Vs Union of India & Ors. (Patna High Court)
The Patna High Court has scheduled a crucial hearing for January 30, 2024, concerning the contentious demand for 18% GST on the royalty for sand extraction. The case, titled Md. Israil Vs Union of India & Ors., revolves around the classification of royalty payments—whether they should be treated as a tax or a service. This decision could have significant implications for the mining sector and the application of GST in similar contexts.
The impugned demand originates from the Mining Department’s request, following an appeal by the Joint Commissioner of the State Taxes Department. The demand seeks an 18% GST on the royalty payments for sand extraction, which are stipulated in agreements between the petitioners and the State.
Legal Precedents and Arguments
The petitioners, represented by their legal counsel, have referenced various orders from both the Hon’ble Supreme Court and High Courts, including the High Court of Jharkhand, which have granted stays in similar cases. A critical element in their argument is the reference made by a Three-Judge Bench of the Supreme Court in the case of Mineral Area Development Authority and Others v. Steel Authority of India and Others (2011), which deferred to a Nine-Judge Bench for a final decision. This reference was made due to conflicting judgments between the Five-Judge Bench in State of West Bengal v. Kesoram Industries Ltd. (2004) and the Seven-Judge Bench in India Cement Ltd. v. State of T.N. (1990), which categorically classified royalty as a tax.
The petitioners argue that since royalty is classified as a tax by a Seven-Judge Bench, it should not be considered as a service provided by the State for granting licenses for sand extraction. This argument is bolstered by a stay order from the Supreme Court in Udaipur Chambers of Commerce and Industry & Ors. v. Union of India & Ors. (2017), which adds weight to their contention.
Counterarguments by the State
The State, represented by the Learned Advocate General, contends that the interim orders referenced pertain to the previous tax regime. The current definition of ‘service’ under the Bihar Goods and Services Tax Act, 2017, encompasses “anything other than sale of goods,” which, according to the State, includes the royalty for sand extraction. The State has also highlighted instances where requests for interim stays have been denied, such as in the cases from the High Court of Judicature for Rajasthan at Jaipur.
Court’s Prima Facie Opinion
The court has expressed a prima facie opinion that royalty, having been declared a tax by a Seven-Judge Bench, cannot currently be deemed a consideration for the service of granting a license. The court also noted that the impugned orders are based on an advance ruling under the Bihar Goods and Services Tax Act, 2017, which is being contested in another case scheduled for the same hearing date.
The Patna High Court’s decision on January 30, 2024, will be pivotal in resolving the ongoing dispute over the applicability of GST on royalty payments for sand extraction. The outcome will not only affect the petitioners but could also set a precedent for similar cases across India.
FULL TEXT OF THE JUDGMENT/ORDER OF PATNA HIGH COURT
Impugned demand, in the above writ petitions, made by the Mining Department, was on the request made by the Joint Commissioner, State Taxes Department. The demand is for deposit of 18% GST on the royalty to be paid by the petitioners, on extraction of sand, for which an agreement has been entered into by the petitioners and the State through the Mining Department. The reasoning behind the demand is that the amounts paid as royalty, is the consideration for the service, by the State to the petitioners, in granting a licence for extracting sand.
2. The petitioners have relied on various orders passed by the Hon’ble Supreme Court and the High Court, both this Court and the High Court of Jharkhand, wherein stay has been granted based on the reference made by a Three-Judge Bench of the Hon’ble Supreme Court in Mineral Area Development Authority and Others v. Steel Authority of India and Others; (2011) 4 SCC 450 to a Nine-Judge Bench. The reference was in so far as a Five-Judge Bench in State of West Bengal v. Kesoram Industries Ltd.; (2004) 10 SCC 201 having held contrary to a Seven-Judge Bench decision in India Cement Ltd. v. State of T.N.; (1990) 1 SCC 12.
3. India Cement Ltd. (supra) categorically held that royalty is a tax, in which circumstance the petitioners contend that it cannot be deemed to be a consideration on service of grant of licence to extract sand. As of now, the Nine-Judge Bench holds the field and even the Hon’ble Supreme Court has noticed the aforesaid decision and granted stay order in Udaipur Chambers of Commerce and Industry & Ors. v. Union of India & Ors. [Special Leave to Appeal (C) No. 37326/2017]. The said interim order is produced as Annexure-P/7 in CWJC No. 17700 of 2023.
4. Learned Advocate General would submit that the interim order passed is with respect to earlier regime and as of now the definition of ‘service’ is ‘anything other than sale of goods’. It is also pointed out that there are orders passed, refusing the interim stay. For example, in Special Leave to Appeal (C) No. 13066/2021 and Special Leave Petition (Civil) Diary No. 4399/2022, filed against the orders of High Court of Judicature for Rajasthan at Jaipur, no stay has been granted.
5. We are of the prima facie opinion that when royalty has been declared to be a tax by a Seven-Judge Bench, as of now the same cannot be deemed to be a consideration for service of grant of lience. In any event, we see that the impugned orders are based on an advance ruling under the Bihar Goods and Services Tax Act, 2017 which is also said to be challenged in CWJC No. 3531 of 2022.
6. Learned Advocate General submits that the said case is posted on 30.01.2024.
7. In the above circumstances, we are of the opinion that these cases also should be posted on 30.01.2024 along with CWJC No. 3531 of 2022. The State would do well to file counter affidavits in all the cases or adopt the counter affidavit in this case in all the connected matters so that the matters can be disposed of finally.
8. Post on 30.01.2024 along with CWJC No. 3531 of 2022.
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