Royalty Collection Contractor─Levy of GST─Constitutional Validity of Condition attached to entry No. 65B of Notification No. 14/2018-Central Taxes (Rate) dated 26.7.2018 (HSN code 9991)
1. Background.─Per entry No. 65B inserted per Notification No. 14/2018-Central Taxes (Rate) dated 26.7.2018 , “Services supplied by a State Govt. to Excess Royalty Collection Contractor (ERCC) by way of assigning the right to collect royalty on behalf of the State Govt. on the mineral dispatched by the mining lease holders” is exempted from levy of GST.
1.1 However, this exemption is subject to fulfillment of the following condition;
“At the end of the contract period, ERCC shall submit an account to the State Govt. and certify that the amount of GST deposited by mining lease holders on royalty is more than the GST exempted on the service provided by State Govt. to the ERCC of assignment of right to collect royalty and where such amount of GST paid by mining lease holders is less than the amount of GST exempted, the exemption shall be restricted to such amount as is equal to the amount of GST paid by the mining lease holders and the ERCC shall pay the difference between GST exempted on the service provided by State Govt. to the ERCC of assignment of right to collect royalty and GST paid by the mining lease holders on royalty.”
2. Analysis of condition.─2.1.The exemption is linked to the amount of GST deposited by mining lease holders on ‘royalty’.
2.2. As held by the Supreme Court that the leases executed by the assessee were leases of immovable property and neither “licenses” nor “agreement to sell” the mineral concerned. Therefore, there was no sale/supply of the mineral extracted or mined by the assessee and that the mining and quarrying of the mineral was only a form of enjoyment of immovable property/land leased out and may also include the right to remove minerals from the land leased. It necessarily meant that the royalty amount was not the purchase price, or a sale price, as it may be called. It was more in the nature of a lease amount, or rent, or the share of the owner in the produce, as the case may be based on Supreme Court & High court decisions.
The Supreme Court decision in State of Madhya Pradesh & Ors v. Orient Paper Mills Ltd. (1977) AIR 687, holding Royalty amount & Excavated material, liable to tax, had already been overruled by the Supreme Court.
2.3. In the case of Galaxy Mining and Royalties v. State of Rajasthan (2022) 38 J.K.Jain’s GST & VR 541, the Demand of GST, raised by the Deptt. on ERCC, has been kept in abeyance on 12.12.2022.
2.4. Our Views.─GST payment by the lease holder on Royalty is not within the purview of GST u/s 7/9, GST Act, as discussed in our article published on the Taxguru site dated 5.1.2023. As such, in our view, stipulating such a condition while exempting ERCC is Constitutionally Invalid.
CA Om Prakash Jain s/o J.K.Jain, Jaipur – Tel: 9414300730/9462749040
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