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Supreme Court Issues Notice On Plea Challenging 18% GST On Mining Operations

Mehal Jain
7 Dec 2021 4:12 PM GMT
Supreme Court Issues Notice On Plea Challenging 18% GST On Mining Operations
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The Supreme Court on Tuesday issued notice on two writ petitions challenging the October 6 circular through which the government of India has clarified that GST is applicable on services by way of grant of mineral exploration and mining rights at the rate of 18%.The writ petitions are filed by a group of firms involved in mining and crushing operations. The bench of Justices D. Y....

The Supreme Court on Tuesday issued notice on two writ petitions challenging the October 6 circular through which the government of India has clarified that GST is applicable on services by way of grant of mineral exploration and mining rights at the rate of 18%.

The writ petitions are filed by a group of firms involved in mining and crushing operations.

The bench of Justices D. Y. Chandrachud, Surya Kant and Vikram Nath asked the advocate for the Petitioners, Mr. Kartik Seth, regarding the issue of maintainability and why have these writ petitions been filed in the Supreme Court directly under Article 32 of the Constitution of India.
Mr. Seth responded by submitting that the same issue is already sub-judice before this Court in various cases and the relevant issue of 'Whether Royalty on Mining is a tax or not?' has been referred to a 9-judges bench previously by a coordinate bench of the Apex Court and various SLPs have been preferred against High Court orders and hence, they already provide the top court with the view taken by different High courts on the subject matter in this case. "Hence, going to the High Court and getting the same view reiterated would be futile and therefore, these Writ Petitions should be entertained by this Hon'ble Court and all the matters should be heard together", it was advanced.
The bench then proceeded to issue notice in the matters and tag it along with the other pending matters.
The petitions urge that the impugned circular has far-reaching repercussions to the effect that every mining company has been made liable to pay Goods and Services Tax on the amount of royalty paid for mining operations inasmuch as the royalty paid by such companies is already a kind of tax being paid to the government and more importantly which question, i.e. royalty being a tax, is pending adjudication before a nine-judges bench of the Supreme Court.
The Petitioners are also seeking stay of the impugned circular of October 6 and directions to the effect that GST cannot be levied on mining royalty.
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 urged that the Petitioners have been paying GST on mining royalty which is paid by them to the state government in accordance with the respective mining lease deeds.
It is submitted that this issue is pending before the Supreme Court in a batch of matters with lead matter titled Udaipur Chambers of Commerce and Industry v. Union of India SLP(Civil) No. 37326 of 2017 vide Order dated 11.01.2018 wherein stay has been granted of payment of service tax on mining royalty until further orders and similarly in various tagged matters, stay has been granted to mining companies for payment of service tax on mining royalty.
An extract from the petition reads :
"This Hon'ble Court vide order dt. 15.01.2020 observed as follows:
'The question involved in these matters is with regard to the payment of service tax on the royalty paid to the State Government. List the matters after eight weeks'. In Udaipur Chambers (supra) petition the same issue, i.e. whether Service tax is leviable on royalty paid to state government in respect of mining operations, is pending adjudication before this Hon'ble Court. While admitting the said petition, vide order dt. 11.01.2018, this Hon'ble Court stayed the order of Hon'ble Rajasthan High Court, which upheld the levy of service tax. Hence the present petition, since the Petitioners are similarly situated as the Petitioner in Udaipur Chambers (supra) and connected petitions. Since this Hon'ble Court is already adjudicating the same issue, the Petitioners also seek liberty to assist this Hon'ble Court in its adjudication".
It is submitted that under reverse charge, business houses have to pay service tax on the amount of mining royalty paid to the government. All the mining companies engaged in mining are required to pay huge royalties (which itself is a tax) to the government for running quarrying operations 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 respect which is why levy of GST is clearly ultra vires the Act.
The Petitioners, while challenging the said Notifications and circulars as stated in the preceding paragraphs, seek issuance of a writ in the nature of Certiorari or any other appropriate writ or order or direction quashing the said 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 mining lease by the State, and declare that Goods and Services tax on Royalty/ Dead rent payable under a mineral concession granted by the State is illegal, unjust, unconstitutional and without any authority of law. In addition to the same, the Petitioners are seeking, through the present Petition, refund of the entire GST amount paid by the Petitioners on the amount of royalty paid for mining to the Government.
"It is worthwhile to mention that a Seven-judges bench of the Hon'ble Supreme Court in the case of India Cements and Ors. vs. State of Tamil Nadu and Ors. (1990) 1 SCC 12 has already held that mining royalty is a tax. The only contention of the Petitioners is that there cannot be an imposition of tax on tax, mining royalty here being already a tax regularly paid by the Petitioners. Furthermore, the question of whether mining royalty is a tax or not is pending before a Bench of nine judges of the Hon'ble Supreme Court in the case of Mineral Area Development Authority & Ors. vs. Steel Authority of India & Ors. (2011) 4 SCC 450. Mining Royalty is a tax. Service tax cannot be paid on another tax", it is advanced.
Furthermore, it is submitted that rendering of a 'service' and existence of a service provider and service recipient relationship between two parties is a sine qua non for payment of service tax. No such relationship however exists between the Petitioners and the State in the present case. It is further submitted that a number of government notifications also reiterate this position that a compulsory levy is in the nature of a tax and service tax cannot be further imposed on such payments.
The Petitioners, through the present Petition, are seeking refund of full amount paid by the Petitioners towards GST on dead rent/ royalty to the State Government and quashing of Notifications and circulars which have led to levy of GST on mining royalty and further, quash any and every following or pursuant demand Notice or show cause notice on behalf of the State Government for payment of GST on mining royalty under reverse charge mechanism.
The Writ Petitions were drawn by Ms. Shriya Gilhotra, Advocate and filed through M/S. Chambers of Kartik Seth, AOR.

Case Title: M/s. Associated Commerce v. Union Of India And Ors, WP(c) 1309 of 2021.; Kalash Minerals And Ors. v. Union Of India And Ors| WP(c) 1323 of 2021.

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