Royalty & Dead Rent Collected for Grant of Mining Leases Not Taxable as ‘Renting Of Immovable Property’: CESTAT [Read Order]

In a recent ruling, the Principal Delhi Bench of the Customs, Excise, Services TaxAppellate Tribunal (CESTAT) held that royalty and dead rent collected for grant of mining leases is not taxable as renting of immovable property service.

The Mining Engineer (Department of Mines and Geology) Rajasthan grants mining leases for extraction of minerals and collect royalty and dead rent as fixed under mining laws. The department issued a show cause notice stating that these amount were rent for use of land and service tax was payable. A demand of more than Rs. 3.47 crore was confirmed which was challenged before the Tribunal.

The appellant’s counsel argued that the collection of royalty and dead rent flows directly from statutory provisions and is part of the sovereign function of granting mining rights. They argued that such collections cannot be equated with commercial renting of land. They further argued that the issue was already decided in its favour in earlier orders passed by the Tribunal in the appellant’s own case.

The revenue supported the impugned order and argued that the consideration received by the appellant was for allowing use of land for mining activities and hence taxable under renting of immovable property. However, the departmental representative conceded that the issue stood covered by earlier Tribunal decisions.

The two-member bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) observed that the grant of mining leases is governed entirely by statute and the amounts collected as royalty and dead rent are fixed by law.

The tribunal observed that neither the Government nor the lessee has any discretion in fixing these charges. The tribunal observed that renting of immovable property as a taxable service applies only to commercial renting activities and not to statutory grant of mining rights.

The tribunal explained that leasing land solely for mining purposes is an exercise of sovereign power and cannot be treated as a taxable service. It pointed out that earlier decisions and Board clarifications have consistently held that grant of mining rights does not fall under taxable support services or renting of immovable property.

The tribunal set aside the impugned order and held that royalty and dead rent collected for grant of mining leases are not liable to service tax under renting of immovable property service, and allowed the appeal.

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