Supreme Court issued a notice in response to a petition challenging 18% GST on mining operations

The Supreme Court on Tuesday served notice on two writ petitions contesting the government of India’s October 6 circular, which clarified that GST is applicable at a rate of 18 percent on services provided in exchange for mineral exploration and mining licences.

A collection of companies involved in mining and crushing operations has filed the writ petitions.

The panel of Justices D. Y. Chandrachud, Surya Kant, and Vikram Nath questioned Mr. Kartik Seth, the Petitioners’ lawyer, about the problem of maintainability and why these writ petitions were filed immediately before the Supreme Court under Article 32 of the Indian Constitution.

Mr. Seth responded by claiming that the same issue has already been decided by this Court in a number of cases, and that the relevant issue of ‘Whether Royal on Mining is a tax or not?’ has previously been referred to a 9-judges bench by a coordinate bench of the Apex Court, and that various SLPs have been filed against High Court orders, thus providing the top court with the views of different High Courts on the subject matter in this case. “Going to the High Court and having the same view reaffirmed would be fruitless,” it was argued. “Instead, these Writ Petitions should be addressed by this Hon’ble Court, and all the cases should be heard together.”

The bench then proceeded to issue a notice in the case and file it with the other outstanding cases.

The petitions argue that the contested circular has far-reaching implications, such as making every mining company liable to pay Goods and Services Tax on the amount of royalty paid to the government, which is already a type of tax paid to the government, and, more importantly, which question, i.e. royalty being a tax, is pending adjudication before a nine-judge Supreme Court bench.

The Petitioners also want a stay of the contested circular from October 6 and orders that GST cannot be applied on mining royalties.

The Notifications and circulars under question are Notification dated 28.06.2017 issued by the Union of India notifying the rate of central tax on intra-state supply of services, Notification dated 29.06.2017 pertaining to intra-state supply of services issued by the state of Madhya Pradesh, Notification pertaining to intra-state supply of services issued by the state of UP and their respective amendments and Circular dated 06.10.2021 issued by the Ministry of Finance, Department of Revenue (Tax Research Unit) giving clarification regarding applicable GST rates.

It is claimed that the Petitioners have been paying GST on mining royalties that they have paid to the state government in compliance with their mining lease agreements.

It is claimed that this issue is pending before the Supreme Court in a batch of cases, the first of which is Udaipur Chambers of Commerce and Industry v. Union of India SLP(Civil) No. 37326 of 2017 (Order dated 11.01.2018), in which a stay of payment of service tax on mining royalty was granted until further orders, and similar stays have been granted to mining companies in various tagged cases.

The following is an excerpt from the petition:

“This Hon’ble Court observed as follows in an order dated 15.01.2020:

The issue in these cases is whether or not service tax should be charged on royalties received to the state government. After eight weeks, make a list of the issues.’ The identical question, namely whether Service tax is leviable on royalty paid to the state government in respect of mining operations, is pending adjudication before this Hon’ble Court in the Udaipur Chambers (supra) suit. This Hon’ble Court stayed the judgement of the Hon’ble Rajasthan High Court, which sustained the levy of service tax, while allowing the aforementioned plea by order dated 11.01.2018. As a result of the Petitioners’ comparable situation to the Petitioner in Udaipur Chambers (supra) and related petitions, the present petition was filed. The Petitioners further request liberty to help this Hon’ble Court in its adjudication because this Hon’ble Court is already adjudicating the identical subject.”

According to the argument, businesses must pay service tax on the amount of mining royalties paid to the government under reverse charge. Despite the fact that royalty is the price of winning minerals from the land and represents the State’s share in such minerals, and there is no element of provision of any service by the State in this regard, all mining companies are required to pay huge royalties (which is itself a tax) to the government for running quarrying operations, the levy of GST is clearly ultra vires the Act.

While challenging the aforementioned Notifications and Circulars, the Petitioners seek issuance of a writ of Certiorari or any other appropriate writ, order, or direction quashing the aforementioned Notifications and Circulars to the effect that no GST can be levied on Royalty/Dead rent paid by a mining lease holder who has been granted a mining lease by the State, and declaring that Goods and Services tax on Royalt In addition, the Petitioners are seeking a refund of the whole GST amount paid by the Petitioners on the amount of royalty paid to the Government for mining through the current Petition.

“It is worth noting that in the case of India Cements and Ors. vs. State of Tamil Nadu and Ors. (1990) 1 SCC 12, a seven-judge bench of the Hon’ble Supreme Court decided that mining royalty constitutes a tax. The Petitioners’ primary argument is that there cannot be a tax on tax because mining royalty is already a tax that the Petitioners pay on a monthly basis. Furthermore, in the case of Mineral Area Development Authority & Ors. vs. Steel Authority of India & Ors. (2011) 4 SCC 450, a Bench of nine judges of the Hon’ble Supreme Court is debating whether mining royalty constitutes a tax or not. Mining royalties are a type of tax. It is not possible to pay service tax on another tax “, it is advanced.

Furthermore, it is argued that the provision of a’service’ and the presence of a service provider and service recipient relationship between two persons is a requirement for service tax payment. In this instance, however, there is no such link between the Petitioners and the State. It is also claimed that a number of official announcements support this viewpoint, stating that a mandatory levy is in the nature of a tax, and that service tax cannot be added to such payments.

The Petitioners are seeking a refund of the full amount paid to the State Government for GST on dead rent/royalty, as well as the quashing of Notifications and Circulars that led to the levy of GST on mining royalty, as well as the quashing of any and all subsequent demand notices or show cause notices issued on behalf of the State Government for payment of GST on mining royalty under the reverse charge mechanism.

Ms. Shriya Gilhotra, Advocate, drafted the Writ Petitions, which were submitted through M/S. Chambers of Kartik Seth, AOR.

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