Minerals like Granite, Limestone, etc are being extracted from mines by various corporates and others for use in the manufacture of other goods like cement etc for sale or otherwise. Though the mines may be owned by the corporates or may have been taken on long lease, the minerals lying below the surface belongs to the Government. Therefore, the corporates and others pay Royalty/Seigniorage fees at different rates based on the quantity of minerals extracted from mines and other yardstick, to the Government under the Mines and Minerals Act.
The issue in question is whether the Royalty/Seigniorage fee paid to the Government as above would attract Purchase Tax under the Vat Act.
Relevant provisions of the Tamilnadu Vat Act is reproduced below:
As per Explanation II to Sec.2(33) of the Tamilnadu Vat Act (relating to definition of sale) every transfer of property in goods by the Central Government or any State Government for cash or for deferred payment or otherwise valuable consideration, whether or not in the course of business shall be declared to be sale for the purpose of this Act.
As per Sec 12 of the Tamilnadu Vat Act (relating to purchase tax) subject to the provisions of sub section 1 of section 3, every dealer who in the course of his business purchases from a registered dealer or from any other person any goods (the sale or purchase of which is liable to tax under this Act),in circumstances in which no Tax is payable by that registered dealer on the sale price of such goods under this Act and either-
(a) consumes or uses such goods in or for the manufacture of other goods for sale or otherwise or etc….
shall pay tax on the turnover relating to the purchase aforesaid at the rates mentioned etc as the case may be.
Sub section (2) – notwithstanding anything contained in clause (24) of section 2, the dealer who pays tax under sub section (1) shall be entitled to input tax credit on the goods specified in the first schedule.
Since the Vat Act of other states are almost similar to the Tamilnadu Vat Act the issue in question could be applicable to other states also.
Conclusion: Purchase tax under the Tamilnadu Vat Act is payable on minerals extracted from mines by corporates and others either from own mines or from mines taken on lease on the Royalty/Seigniorage fee paid to Government (being valuable consideration-Explanation –II to Sec 2(33)).
Input tax credit can be availed.
Views and comments with case laws, if any, on the issue are welcome.