Sunita Ganguly And Ors vs Principal Commissioner, Central GST & Central Excise, Ranchi And Ors

All these petitioners are lessees of minor minerals awarded by the State.

In the first three writ petitions in these batch of cases being W.P.(T) No.3878 of 2020, W.P.(T) No.3736 of 2020 and W.P.(T) No.4163 of 2020

petitioners have sought declaration that royalty is not a payment in respect of any taxable service at all as it is imposed under Section 9 of the Mines

and Minerals (Development and Regulation) Act, 1957 in respect of any minerals 'removed or consumed' by the holder of a mining lease from the

leased area, at the rate specified. They have also sought declaration that Notification No. 22/2016-ST dated 13.04.2016 and its clarification is ultra-

vires the provisions of the Finance Act, 1994. According to them, there is no liability to pay service tax under this Finance Act, 1994 on royalty in

quarrying stones.

These petitioners have sought quashing of the notices issued by the Superintendent, CGST & CX, directing them to furnish data relating to payment

of royalty against licensing services for right to use minerals including exploration and evaluation for the period April, 2016 to June, 2017. In W.P.(T)

No. 3736 of 2020, petitioner has also sought quashing of the demand-cum-show cause notice issued by respondent no. 3 for payment of service tax

for the same period on such royalty under reverse charge mechanism. Relying upon the interim order passed by the Hon'ble Supreme Court dated

11.01.2018 in Special Leave to Appeal (Civil) No. 37326 of 2017, petitioners have prayed restraint upon the respondents from payment of service tax

for grant of mining lease/royalty by the petitioners.

In W.P.(T) No. 290 of 2021, W.P.(T) No.307 of 2021 and W.P.(T) No.453 of 2021, the levy of JGST is under challenge by the petitioners on

similar ground. In the remaining batch of writ petitions, the levy of service tax and CGST are under challenge. According to these petitioners, no

service tax and/or GST is leviable on the amount of Royalty and District Mineral Fund contribution paid by the petitioners. These petitioners have

sought restraint upon the respondents from demanding service tax and GST under the provisions of Finance Act, 1994 and CGST Act, 2017 or JGST

Act, 2017 as per the case of the writ petitioners on the Royalty and District Mineral Fund contribution paid by the petitioners' pursuant to the mining

lease granted in their favour for excavation of stone in the State of Jharkhand.

Learned counsel for the petitioners have addressed this Court on the legal issues concerning leviability of service tax and/or GST upon royalty paid

by the petitioners in lieu of the lease granted by the State Government for quarry of minor minerals. Learned counsel for the petitioners have taken

through the scheme of the Finance Act, 1994 and its amendment made from time to time including the amendment made under Section 109(1) of the

Finance Act, 2015 brought into effect from 01.04.2016. According to the petitioners, prior to the amendment to Section 66D of the Finance Act, 1994

as above, no demand of service tax was raised ever. Petitioners have specifically assailed the leviability of service tax for the period April, 2016 to

June, 2017 assailing the notification dated 13.04.2016 as ultra vires the Finance Act, 1994.

The sheet anchor of the argument of the petitioners so far as leviability of service tax on royalty is that, royalty cannot fall within the meaning of

consideration, as such, there is no element of service involved under the Finance Act, 1994 as amended. In the alternative, petitioners have relied upon

the decision of the Apex Court in the case of ""India Cement Limited and Others Vs. State of Tamil Nadu and Others"" reported in (1990) 1 SCC 12

(para 34) and submitted that as per the ratio of this decision by a seven Judges Bench of the Apex Court, royalty is a tax. Therefore, service tax or

GST cannot be levied thereupon. Learned counsel for the petitioners acknowledge that the issue whether royalty is a tax or not is referred to the

larger Bench of nine Judges in the case of ""Mineral Area Development Authority and Others Vs. M/s. Steel Authority of India and Others"" reported

in (2011) 4 SCC 450.

In this broad canvass of argument, learned counsel for the petitioners have prayed for an interim order at this stage in the nature granted by the Apex

Court in Special Leave to Appeal (Civil) No. 37326 of 2017 order dated 11.01.2018.

Learned counsel for the petitioners in the batch of cases leaving the first three writ petitions i.e. W.P.(T) Nos. 3878 of 2020, 3736 of 2020 and 4163

of 2020, has made additional submissions to question the leviability of CGST and/or JGST in the case of respective individual petitioners, as the case

may be, on the same lines. Learned counsel for the petitioners has referred to the various provisions of the CGST Act, 2017 and/or JGST Act, 2017

read with the entry in Schedule -II to submit that even under the GST regime royalty cannot be treated as a consideration for the purposes of levy of

GST. Provisions under Section 2(31)- 'consideration', Section 7 regarding 'Scope of supply' and Section 9 - 'Levy and collection' as also Section 15 i.e.

'Value of taxable supply' of GST Act, 2017 have been placed upon to buttress the submission. Learned counsel for the petitioners has also relied upon

the case of ""Govind Saran Ganga Saran Vs. Commissioner of Sales Tax and others"" reported in 1985 (Supp) SCC 205 (para 6) delineating the four

essential components of valid levy of tax.

Mr. Gadodia, learned counsel has also relied on the decision in the case of ""M/s. Tata Sky Ltd. Vs. State of M.P. and Ors."" reported in (2013) 4

SCC 656 on the plea that the measure of tax cannot be made the basis to justify the levy of tax, if the charging section does not bring the activity

exigible to tax. Learned counsel for the petitioners submits that there is no significant difference in the structure of the tax regime and the applicable

provisions so far as the leviability of GST on royalty is concerned, as royalty can in no manner be treated as consideration in respect of a lease for

extraction of minor mineral.

Learned counsel for the petitioners have placed some of the notices issued in the respective writ petitions whereby the petitioners' have been asked

to furnish data/information relating to payment of royalty against licensing service for right to use minerals including excavation and evaluation for the

period in question. He submits that in certain cases such as W.P.(T) No. 290 of 2021, the notice is in the nature of a demand asking the petitioner to

deposit the GST upon royalty through reverse charge mechanism and submit its detail to the office of Deputy Commissioner, State Tax, East Circle,

Ranchi. Learned counsel has also placed reliance upon the interim order passed by the Gujarat High Court in the case of ""Gujmin Industry Association

Vs. Union of India"" reported in 2018 SCC OnLine Guj 1417, interim order dated 25.01.2021 passed by the Karnataka High Court in Writ Petition No.

140859 of 2020 and also the interim order dated 22.08.2017 passed by High Court of Bombay at Goa in the case of ""Goa Mining Association & Anr.

Vs. Union of India and Others"" in Writ Petition No. 1076 of 2016 and analogous cases. It is also pointed out that the interim order passed by the High

Court of Bombay at Goa was not interfered with by the Apex Court in Special Leave Petition (Civil) Diary No. 9984 of 2019 judgment dated

05.07.2019 both on grounds of delay and merits. Based on these broad submissions, learned counsel for the petitioners have prayed for interim

protection.

Learned Advocate General has appeared for the State of Jharkhand in the respective writ petitions in which levy of JGST is in question. He has

made two fold arguments, inter alia, (i) The levy of service tax under the Finance Act, 1994 does not concern the State of Jharkhand (ii) The JGST

Act being pari materia to the CGST Act, 2017 under the GST regime have significant difference in the provisions relating to levy of tax on goods and

services compared to the Finance Act, 1994. In none of these interim orders relied upon by the petitioners, the levy of GST has been restrained. It is

submitted that the meaning of 'consideration' as defined under Section 2(31) of the GST Act covers the licensing services for the right to use minerals

including its exploration and evaluation. Learned Advocate General has further submitted that the interim order passed by the Apex Court in the case

of ""Udaipur Chambers of Commerce and Industry and Others Vs. Union of India and Others"" arose from a challenge relating to the leviability of

service tax on royalty in connection with licensing services of minor minerals. In the present writ petitions at this stage, the department has only called

for data and information relating to royalty for the purposes of determining the tax liability of the petitioners under JGST. The writ petitions are

premature as there is no imminent recovery of GST from the petitioners. The State would however file a comprehensive counter-affidavit on the legal

issues raised by the petitioners concerning the leviability of the GST. However, there is no grounds made out for stay of the notices or assessment

proceedings at this stage.

Mr. Ratnesh Kumar, learned counsel appearing for DGGI in W.P.(T) No. 3736 of 2020 relating to challenge to service tax on royalty, has sought

to explain the legislative changes incorporated in the Finance Act, 1994 with effect from 01.04.2016 in Section 66D. The expression 'support service'

has been substituted by 'any service'. He further submits that the Apex Court has only stayed the payment of service tax, but not restrained the

assessment proceedings.

Mr. P.A.S. Pati and Mr. Amit Kumar appear for the CGST in the respective writ petitions wherein the levy of service tax and GST is under

challenge. At the outset, it is submitted by them that the challenge to the levy of GST is premature at this stage since no determination of the tax

liability has been made. Petitioners have been only noticed or summoned to produce necessary data /information relating to the royalty paid and/or

GST paid thereupon. According to them also, there are significant differences in the provisions of the GST Act relating to levy of tax both on supply of

goods and services compared to the Finance Act, 1994. They have also referred to the provisions of the GST Act and in particular Section 15(2)

thereof. It is submitted that the respondent department would also file a comprehensive reply to the issues raised by the writ petitioners. However, no

case of interim protection is made out, moreover the stage of recovery of tax has not yet reached.

We have heard learned counsel for the parties on the legal issues raised concerning the leviability of service tax and CGST or JGST as the case

may be concerning these petitioners, who are lessees of minor minerals. The legal issues concerning the leviability of the tax can be answered after

considering the response of the respondent CGST and the State. The challenge in these writ petitions are in two parts. One relating to levy of service

tax on royalty till the coming of the GST regime. The other writ petitions relate to challenge to both service tax and GST upon royalty in case of the

respective petitioners or JGST in three writ petitions referred to earlier. Finance Act, 1994 brought into force the concept of service tax. The GST Act

was introduced from 01.07.2017. Both are separate enactments with detailed provisions relating to charging section and the measure of tax and

machinery. It appears that in similar challenges made to the levy of service tax on royalty paid on minerals, the matter went up to the Apex Court in

the case of Udaipur Chambers of Commerce and Industry and Others (Supra), arising out of a judgment of the High Court of Judicature for Rajasthan

at Jodhpur. The Apex Court has been pleased to pass the following interim order:

Heard the learned counsel for the petitioners and perused the relevant material.

Application for exemption from filing certified copy of the impugned order is allowed.

Issue notice.

Until further orders payment of service tax for grant of mining lease/royalty by the petitioners shall remain stayed.

Other High Courts have passed more or less similar interim orders relating to payment of service tax on royalty as noticed hereinabove. The High

Court of Bombay at Goa vide interim order dated 22.08.2017, has stayed the imposition of service tax on royalty, but at the same time clarified that it

would not come in the way of the revenue for conducting and completing its assessment and enquiry.

Having regard to the legal issues raised in respect of the levy of service tax on royalty in the respective writ petitions, we are inclined to pass

similar interim order in respect thereof. While the revenue is not restrained from conducting and completing the assessment proceedings, until further

orders recovery of service tax for grant of mining lease/royalty from the petitioners shall remain stayed. However, we are not satisfied at this stage

that any case for granting interim protection is made out so far as the levy of CGST and/or JGST is concerned.

Let counter-affidavit be filed by the respondents within a period of three weeks. Petitioners, if so advised, may file reply thereto within two weeks

thereafter.

Written notes and decisions on which the parties seek to rely upon be submitted at least a week before the next date of hearing. Let these matters

appear in the week of 26th April, 2021.