Royalty paid to State Government held consideration for licensing right to use minerals, not transfer of right to use goods
Meetu Kumari | Feb 6, 2026 |
GST On Mining Royalty: Maharashtra AAR Rules Leasing of Mines Taxable as Licensing Service At 18%
The applicant, M/s. Ramandeep Upkarsingh Bindra, is engaged in mining and quarrying of minor minerals such as black rock and stones in Maharashtra. For carrying out mining operations, the applicant obtained a mining lease from the State Government under the Maharashtra Minor Mineral Extraction (Development and Regulation) Rules, 2013. The applicant was required to pay royalty or dead rent to the State Government, calculated on the quantity of minerals extracted.
The applicant contended that royalty represented consideration for the transfer of the right to use minerals and should therefore be classified as leasing services involving transfer of right to use goods. An advance ruling was sought to determine the correct classification and applicable GST rate on royalty paid for the mining lease.
Main Issue: Whether royalty paid to the State Government for the grant of a mining lease is classifiable as transfer of right to use goods under Entry 17(iii) of Notification No. 11/2017–CT (Rate), attracting GST at the same rate as the supply of minerals, or as licensing services for the right to use minerals under Heading 9973, taxable at 18%.
AAR Ruled: The Maharashtra Authority for Advance Ruling held that the grant of a mining lease by the State Government does not amount to the transfer of the right to use goods. It was observed that ownership of minerals always vests with the State and that royalty is merely a consideration for permission to extract minerals subject to statutory control. The applicant does not receive exclusive possession or ownership of the minerals in situ, but only a regulated licence to exploit them.
The Authority ruled that the activity is classifiable under Heading 9973, specifically under sub-heading 997337 as “licensing services for the right to use minerals including its exploration and evaluation.” The service does not fall under Entry 17(iii) of Notification No. 11/2017–CT (Rate). The royalty paid is therefore liable to GST at 18% under the residual licensing category, payable by the applicant under the reverse charge mechanism.
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