The Himachal Pradesh High Court has dismissed a writ petition challenging notifications issued by the Central government for levy of GST on Royalty paid by a Mineral Concession Holder for mining concession granted by the State.

The Petitioner, a firm engaged in stone crushing, was issued notices and summons under Section 70 of Central Goods and Services Tax Act, demanding GST on royalty.

Petitioner’s challenge in the year 2023 was based on a seven-Judge Bench decision of the Supreme Court in India Cement Ltd. and ors. vs. State of Tamil Nadu and ors. wherein it was declared that royalty itself is a tax.

Petitioner had argued that any demand for GST on royalty by the respondents would prima-facie amount to levying a tax on tax, which should be beyond the legislative competence of the respondent-authority.

A division bench of Acting Chief Justice Tarlok Singh Chauhan and Justice Satyen Vaidya observed that India Cement Ltd. (supra) was overruled by a nine-Judge Bench of the Supreme Court in Mineral Area Development Authority & anr. vs. M/s Steel Authority of India & anr. (2024).

In Mineral Area Development (supra) the Top Court by an 8:1 majority held that States have the power to levy tax on mineral rights. It was further held that Royalty is not within the nature of a tax as it is a contractual consideration paid by the lesssee to the lessor under the mining lease.

The Top Court said there is no specific provision in the Mines and Minerals (Development and Regulation) Act 1957 imposing limitations on the taxing powers of the State. Royalty under Section 9 of the MMDR Act is not in the nature of a tax. Section 9 MMDR Act does not impose any limitation on the power of States to tax minerals. The limitations imposed by Section 9 on royalties do not amount to limitations on the State’s powers.

“Therefore, the respondents are well within their rights to levy GST on the royalty paid by the mineral concession holder for any mining concession granted by the State,” the High Court held and dismissed the plea.

Appearance: Advocate Arvind Sharma for Petitioner; Dy SGI Balram Sharma with Advocate Rajeev Sharma for Respondents No. 1, 3 and 4; AG Anup Rattan with Addl. AGs Rakesh Dhaulta, Pranay Pratap Singh and Sushant Kaprate, Dy AGs Arsh Rattan and Priyanka Chauhan for Respondent No.2

Case title: M/s Lakhwinder Singh Stone Crusher v. Union of India & ors.

Citation: 2024 LiveLaw (JKL) 72

Case no.: CWP No. 8637/2023