Tuesday, June 28, 2022

Allahabad High Court stays GST demand on payment of royalty on mining

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The Allahabad High Court has stayed a demand for GST on payment of royalty during the mining process.

A single bench of Justice Saumitra Dayal Singh passed this order while hearing a petition filed by M/S Jitendra Singh.

The writ petition has been filed to assail the appeal order.

Challenge has been raised to the First Appeal Order dated 02.07.2021 arising from the earlier order dated 18.06.2018 passed under Section 73 of the UP GST Act, 2017. Second, challenge has been raised to the ex parte order dated 23.06.2021 passed by the State GST authority pursuant to a notice dated 15.03.2021. Both proceedings are stated to be for the same tax period being Financial Year 2017-18.

The Court noted,

It has been submitted, no liability of GST may arise on payment of royalty to conduct mining activity. Reliance has been placed on an interim order dated 15.11.2021 of the Court passed by a division bench in a petition, wherein it has been observed as under:

“Upon the matter being taken up, counsel for the petitioner has vehemently urged that the royalty payment is tax and not consideration in the context of the privilege parted by the State allowing the petitioner and others to mine sand. That being the nature of the payment made by the petitioner, the same is not amenable to GST as it is not considered either for sale of goods or service provided.”

Further reliance has been placed on a Constitution Bench decision of the Supreme Court in India Cement Ltd. and Others vs. State of Tamil Nadu and Others (1990) 1 SCC 12, wherein, nature of royalty payment was considered and it was opined to be in the nature of tax, (in paragraph 34 of the report).

Also, it has been shown that a similar controversy is engaging the attention of the Supreme Court in M/s Lakhwinder Singh vs. Union of India & Ors. in Writ Petition (Civil) No. 1076 of 2021. On 04.10.2021, the Supreme Court has passed the below quoted order:-

“1 Issue notice.

2 Tag with SLP(C) No 37326 of 2017.

3 Until further orders, payment of GST for grant of mining lease/royalty by the petitioner shall remain stayed.”

It has been stated that the Supreme Court has disposed of Writ Petition (Civil) No 1076 of 2021 on the ground of alternative remedy, the Court further noted.

Matter requires consideration, both on the issue of liability to pay GST and royalty as also as to jurisdictional error in the second proceeding for the same tax period, the Court observed.

“Standing Counsel prays for and is granted six weeks’ time to file counter affidavit. Petitioner shall have two weeks’ thereafter to file a rejoinder affidavit. Until further order of the Court, demand of GST and payment of royalty pursuant to the orders dated 02.07.2021 and 23.06.2021 as also proceedings pursuant to the notice dated 15.03.2021 shall remain stayed,” the Court ordered.

The Court has fixed the next hearing of the petition on September 7, 2022.

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