Saturday, June 3, 2023

Supreme Court turns down plea by mining firm against service tax on mining royalty

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The Supreme Court on Friday turned down a plea filed by a mining firm challenging the show-cause notice to pay service tax on royalty stating the same is completely illegal, unconstitutional and arbitrary and deserves to be set aside. 

The petitioner’s counsel submitted before the Court that in recent order passed by this Court in matter of “Lakhwinder Singh Vs Union of India” (writ petition) on 04/10/2021, granted stay of payment of GST for grant of mining lease/royalty by the petitioner until further orders while tagging along with a pending SLP (C) No 37326/2017. 

Justice D.Y. Chandrachud replied, “Actually thereafter a lot of petitions under Article 32 we have dismissed, you will get those orders.  Actually, I think after 4th of October 2021, those orders have been passed. These orders were shown and the three-judge bench took the view that Article 32 petition will not be entertained because lot of writ petitions listed with SLPs. Because otherwise at the end of six months, we will have 10000 petitions from all over the country.”

The petitioner asked to withdraw the plea with a liberty to approach the High Court. “Please say it will not come in my way to approach the High Court,” he requested the bench. 

“Mr Rajesh Yadav, learned counsel, seeks to withdraw the petition filed under Article 32 of the Constitution so as to enable the petitioner to move the High Court under 226. Petition is accordingly dismissed as withdrawn. Petitioner is granted liberty to seek appropriate remedy under the law,” ordered the bench of Justices Chandrachud and Sanjiv Khanna. 

The present plea under Article 32 was filed by M/S Siddharth engaged in the business of mining challenging the demand cum show notice issued by Deputy Commissioner and Central Excise Division Mirzapur, Uttar Pradesh in which the firm is required to pay service tax on mining royalty under the provisions of the Finance Act, 1994 along with the interest.

The petitioner contended that the taxation on mining royalty is illegal and mining royalty is a tax, service tax cannot be paid on another tax. It also submitted that all the mining companies engaged in mining or required to pay huge royalties, which itself is a tax to the government for running carrying operations despite the fact that royalty is the price of mining minerals from the land and represent the State shares in such minerals and the is no element of provisions of any service by the State in this respect which is why levy of service tax is clearly ultra vires the Act.

Through the writ petition, the petitioner raised the following questions of Law-

–      Whether a mineral concession holder is liable to pay Service Tax on the royalty payable by him towards a mining concession?

–      Whether royalty/dead rent paid towards a mining concession is a tax?

–      Whether any Service Tax can be charged on any amount paid/ payable as a tax

–      Whether the demand and subsequent collection of Service Tax on the royalty/ dead rent paid by the petitioner is illegal, unjust, arbitrary and untenable in the eyes of law?

–      Whether the grant of mining concession by the state constitutes the provision of any service by it or does it constitute a simple discharge of statutory obligations by the state.

In the lead matter of similar contention that whether service tax is leviable on royalty paid to the State Government in respect of mining operations, titled Udaipur Chambers of Commerce and Industry v Union of India, the court has granted stay on mining royalty until further orders. 

Case Name- M/S Siddharth Vs UOI

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