Demand for 18% GST on Sand Extraction Royalty: Patna HC Schedules Hearing for January 30 2024 [Read Order]

The Patna High Court has scheduled a hearing for January 30, 2024, regarding the demand for an 18% Goods and Service Tax ( GST ) on sand extraction royalty.

In the writ petitions, made by the Mining Department, was on the request made by the Joint Commissioner, State Taxes Department. The demand is for deposit of 18% GST on the royalty to be paid by the petitioners, on extraction of sand, for which an agreement has been entered into by the petitioners and the State through the Mining Department. The reasoning behind the demand is that the amounts paid as royalty, is the consideration for the service, by the State to the petitioners, in granting a license for extracting sand.

The petitioners have relied on various orders passed by the Supreme Court and the High Court, both this Court and the High Court of Jharkhand, wherein stay has been granted based on the reference made by a Three-Judge Bench of the Supreme Court in Mineral Area Development Authority and Others v. Steel Authority of India and Others, to a Nine-Judge Bench. The reference was in so far as a Five-Judge Bench in State of West Bengal v. Kesoram Industries Ltd.; (2004) having held contrary to a Seven-Judge Bench decision in India Cement Ltd. v. State of T.N.

India Cement Ltd. (supra) categorically held that royalty is a tax, in which circumstance the petitioners contend that it cannot be deemed to be a consideration on service or grant of license to extract sand. As of now, the Nine-Judge Bench holds the field and even the Supreme Court has noticed the aforesaid decision and granted a stay order in Udaipur Chambers of Commerce and Industry & Ors. v. Union of India & Ors.

The Advocate General would submit that the interim order passed is with respect to the earlier regime and as of now the definition of ‘service’ is ‘anything other than sale of goods’. It is also pointed out that there are orders passed, refusing the interim stay. For example, in Special Leave to Appeal (C) No. 13066/2021 and Special Leave Petition ( Civil ) filed against the orders of High Court of Judicature for Rajasthan at Jaipur, no stay has been granted.

The bench considered the opinion that when royalty has been declared to be a tax by a Seven-Judge Bench, as of now the same cannot be deemed to be a consideration for service or grant of license.

Further the division member bench comprising Justice K. Vinod Chandran and Justice Rajiv Roy further opinion that these cases also should be posted on 30.01.2024, and the State would do well to file counter affidavits in all the cases or adopt the counter affidavit in this case in all the connected matters so that the matters can be disposed of finally.

To Read the full text of the Order CLICK HERE

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