Royalty Under Mining Lease Executed Before 1 April 2016 Not Taxable; CESTAT Delhi Remands Service Tax Demand Case

The New Delhi Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has remanded a service tax demand raised on mining royalty paid to the State Government, holding that where the mining lease was executed prior to 1 April 2016, the applicability of service tax must be examined in light of the negative list regime under the Finance Act, 1994 . The Bench, comprising Ms. Binu Tamta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member), noted that the mining lease agreements were neither produced before the adjudicating authority nor before the Commissioner (Appeals). In the absence of the lease agreements on record, the Tribunal held that the issue could not be conclusively decided at this stage. The Tribunal was dealing with an appeal filed by M/s R.D. Clay Mines Private Limited, challenging the confirmation of service tax demand, interest and penalty for alleged non-payment of service tax under the reverse charge mechanism on royalty paid for mining rights. The Department's case was that royalty paid to the Government for grant of mining rights was liable to service tax under reverse charge . On the other hand, the assessee contended that its mining lease agreements were executed prior to 1 April 2016 and, therefore, the activity was covered under the negative list of services under Section 66D of the Finance Act, 1994, as it then stood. It was argued that services provided by the Government were not taxable prior to the amendment effective from 1 April 2016 . Relying upon its earlier decisions, including The Principal Commissioner, CGST & Central Excise, Bhopal vs. M/s S.R. Traders and Madhya Pradesh State Mining Corporation Ltd., the Bench reiterated that prior to 1 April 2016, services provided by the Government for grant of mining rights were covered by the negative list and were not exigible to service tax. Only with effect from 1 April 2016 were such services brought to tax . In view of the above, the Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for fresh consideration after examining the mining lease agreements and applying the settled legal position. Case Title: M/s R.D. Clay Mines Pvt. Ltd. v. Commissioner (Appeals), CGST & Central Excise, Jodhpur Case No.: Service Tax Appeal No. 55087 of 2023 Appearance for Appellant: Ms. Shradha Sareen Appearance for Respondent: Shri Rajeev Kapoor and Shri Shashank Yadav 2026 LLBiz CESTAT(DEL)3Click Here To Read/Download Order

Royalty Under Mining Lease Executed Before 1 April 2016 Not Taxable; CESTAT Delhi Remands Service Tax Demand Case

Rajnandini Dutta

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