Himachal Pradesh HC Upholds Levy Of GST On Royalty Payments For Mining Concessions Granted By State

The petitioner, a firm engaged in stone crushing, had been issued notices under Section 70 of the Central Goods and Services Tax Act for the payment of GST on the royalty it paid for mining concessions granted by the State.

In its challenge, the petitioner relied on a seven-judge bench decision of the Supreme Court in India Cement Ltd. vs. State of Tamil Nadu (referred to as India Cement case), which had previously declared that royalty is a form of tax. The petitioner contended that any demand for GST on royalty would effectively amount to a "tax on tax," which should be beyond the competence of the government authorities.

The Division Bench of Acting Chief Justice Tarlok Singh Chauhan and Justice Satyen Vaidya noted that the Supreme Court's ruling in India Cement had been overruled by a nine-judge bench in a more recent decision—MineralArea Development Authority vs. Steel Authority of India (2024).

In this landmark judgment, the Court clarified that royalty is not a tax but a contractual payment made by the lessee to the lessor under the mining lease agreement. The Supreme Court had further held that the States have the constitutional power to levy taxes on mineral rights, and that there is no provision in the Mines and Minerals (Development and Regulation) Act (MMDR Act) that restricts the taxing powers of the States over minerals. The Court also observed that the limitations on royalties under Section 9 of the MMDR Act do not curtail the State's taxing powers.

The High Court ruled, “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.”

Cause Title: M/s Lakhwinder Singh Stone Crusher v. Union of India & Ors., [2024:HHC:10578]

Petitioner: Advocate Arvind Sharma

Respondents: Deputy Solicitor General of India (Dy SGI) Balram Sharma, Advocates Rajeev Sharma, Anup Rattan, Rakesh Dhaulta, Pranay Pratap Singh, Sushant Kaprate, Arsh Rattan and Priyanka Chauhan