Facts of the Case

Several writ petitions were filed before the Rajasthan High Court by mining contractors, mining lease holders, mineral associations and other mining entities challenging the levy of GST on mining royalty payable to the State Government.

The petitioners sought declaration that GST was not leviable on royalty paid for mining rights and questioned the constitutional validity of various provisions of the CGST Act, 2017 and the Rajasthan GST Act, 2017. They also challenged departmental circulars, reverse charge notifications, show cause notices, recovery proceedings and consequential interest and penalty.

Some petitioners additionally challenged the levy of GST on contributions made towards the District Mineral Foundation Trust (DMFT) and Rajasthan State Mineral Exploration Trust (RSMET).

The matters were heard together because all petitions involved the common issue relating to the legality of GST on mining royalty. 

Issues Involved

  1. Whether GST is leviable on royalty paid for grant of mining rights.
  2. Whether Sections 9, 15, 50, 73 and 74 of the CGST Act/RGST Act are unconstitutional insofar as they impose GST, interest and penalty on mining royalty.
  3. Whether Circular No. 164/20/2021-GST dated 06.10.2021 and related notifications treating mining royalty as taxable supply are legally valid.
  4. Whether earlier Rajasthan High Court decisions rejecting identical challenges are binding on coordinate Benches despite pendency of Special Leave Petitions before the Supreme Court.
  5. Whether interim orders granted in certain cases could override final judgments already delivered on the same issue.

Petitioners' Arguments

  • Mining royalty is not consideration for supply of services and therefore GST cannot be levied.
  • Circular No. 164/20/2021-GST wrongly presumes taxability of mining rights under GST.
  • Reverse Charge Notifications covering mining royalty deserve to be read down.
  • Sections 9 and 15 of the CGST/RGST Act are unconstitutional to the extent they levy GST on mining royalty.
  • Interest and penalty provisions under Sections 50, 73 and 74 cannot survive when the principal levy itself is invalid.
  • GST should also not apply on contributions made towards DMFT and RSMET.
  • Earlier judgments of the Rajasthan High Court are pending before the Supreme Court where interim protection has been granted in some matters.
  • Since the Supreme Court has not finally decided the controversy, fresh writ petitions should be entertained and interim protection should also be granted.

 

Respondents' Arguments

The Union of India and State authorities argued that:

  • The issue of GST on mining royalty has already been conclusively decided by several Division Benches of the Rajasthan High Court.
  • Earlier judgments including Udaipur Chambers of Commerce and Industry, Mateshwari Minerals, Shivalik Silica, and Rajasthan Small Mines (Cheja Patthar) Lease Holders Association had already upheld the levy.
  • Mere pendency of SLPs before the Supreme Court does not wipe out binding High Court precedents.
  • Interim orders passed in some cases cannot prevail over final judgments.
  • Coordinate Benches are bound to follow earlier final decisions unless those judgments are set aside by the Supreme Court.

Court Order / Findings

The Rajasthan High Court dismissed the challenge to GST on mining royalty and held:

  • Multiple coordinate Benches had consistently upheld the levy of GST on mining royalty.
  • Final judgments have binding precedential value, whereas interim orders do not constitute binding precedents.
  • Pendency of Special Leave Petitions before the Supreme Court does not dilute or suspend the binding nature of existing High Court judgments unless stayed or set aside.
  • Reliance on interim protection granted in certain other matters cannot override final judicial pronouncements.
  • Accordingly, writ petitions challenging GST on mining royalty were dismissed.
  • In the connected writ petition involving additional issues relating to DMFT and RSMET, only those separate issues were directed to survive for adjudication, whereas the challenge relating to GST on royalty stood rejected.

Important Clarification

  • Final judgments have greater precedential value than interim orders.
  • Pendency of appeals before the Supreme Court does not automatically suspend binding High Court decisions.
  • GST on mining royalty continues to remain enforceable under Rajasthan High Court precedents unless the Supreme Court decides otherwise.
  • Separate issues relating to DMFT and RSMET contributions were kept open only in the concerned writ petition.
  • The Court also noticed that the larger issue relating to the nature of royalty is pending before a Constitution Bench of the Supreme Court in the Mineral Area Development Authority matter.

Sections Involved

  • Section 9, CGST Act, 2017
  • Section 15, CGST Act, 2017
  • Section 50, CGST Act, 2017
  • Section 73, CGST Act, 2017
  • Section 74, CGST Act, 2017
  • Corresponding provisions of the Rajasthan GST Act, 2017
  • Notification No. 13/2017-Central Tax (Rate)
  • Circular No. 164/20/2021-GST dated 06.10.2021
  • Reverse Charge Mechanism provisions relating to mining royalty

Related Case Laws

  • Udaipur Chambers of Commerce and Industry & Others vs Union of India & Another
  • M/s Mateshwari Minerals & Another vs Union of India & Another
  • M/s Shivalik Silica vs Union of India & Others
  • Rajasthan Small Mines (Cheja Patthar) Lease Holders Association vs State of Rajasthan & Others
  • State of Assam vs Barak Upatyaka D.U. Karmachari Sanstha (2009) 5 SCC 694
  • Mineral Area Development Authority & Others vs Steel Authority of India & Others (2011) 4 SCC 450

Link to Download the Order-: https://www.mytaxexpert.co.in/uploads/1784806122_1918compressed.pdf

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