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The Mining Royalty Judgment And The GST Amnesty Scheme: A False Connection?

Live Law

On 25th July 2024, a 9-judge bench of the Supreme Court delivered the judgment in Mineral Area Development Authority (MADA) v. Steel Authority of India Limited (SAIL) (MADA Judgment), effectively overruling the judgment in India Cement Ltd. v. State of Tamil Nadu. The Apex Court held that Royalty on Mining is not in the nature of Tax.

The MADA judgment has raised certain anxieties amongst the commercial sector/mining entities that are GST compliant, about its potential impact on pending disputes before various High Courts and the Supreme Court in India. In one of the cases pending before the Supreme Court, Udaipur Chambers of Commerce and Industry v. Union of India (Udaipur Chambers of Commerce Case) the issue raised is whether Goods and Services Tax/Service Tax needs to be paid for the grant of mining lease/royalty. 

While the Supreme Court has in the Udaipur Chambers of Commerce case, ordered a stay on such payments till the matter is finally decided, an alternate avenue has come to the forefront that promises the waiver of any interest or penalty in exchange for the withdrawal of appeals, petitions, writs and SLPs by persons who were affected by GST on Royalty. 

This is the GST Amnesty Scheme 2025 launched by the Central Board of Indirect Taxes and Customs that is being seen as perceived as a “panacea”, to end all speculations regarding what might be the “potential repercussions” of the MADA judgment. 

This scheme has been adopted by many states across India under which many petitioners are withdrawing appeals, petitions, writs and SLPs from various High Courts and the Supreme Court.

It would be important to note here that the Supreme Court has not decided anything about the levy of GST on Mining Royalty in the MADA judgment. It is simply a misguided reading of the MADA judgment and the resulting presumptions that are being drawn by various articles, blogs and news on the internet.

The Supreme Court has observed in the MADA judgment, that “royalty paid for carrying out mining operations to extract minerals under a mining lease is a right to enjoy immovable property”. This clearly shows that GST on Mining Royalty was never the issue before the bench of the 9 judges of the Supreme Court.

In Para 83 of the MADA judgment, the Supreme Court has reiterated the observations made in the aforementioned cases that “according to Section 3(26) of the General Clauses Act 1897, immovable property is defined to include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. A mineral is also a benefit arising out of land. The right to carry out mining operations to extract minerals under a mining lease has been held by this Court to be a right to enjoy immovable property within the meaning of Section 105.”

It shows that GST does not apply to royalty on mining leases as royalty is a form of payment being made for the beneficial enjoyment of rights i.e., minerals arising out of land. There is no “supply of any goods or services” which is a requirement to impose tax under Article 246A. The royalty paid is more like the amount to be paid for the lease to extract minerals from the land, which is an immovable property and immovable property is not covered under GST.

All the GST-compliant miners of the country who have challenged the levy of GST on royalty on mining before various legal fora (High Courts and the Supreme Court) and have an interim order/stay in their favour need not make hasty withdrawals of appeals, petitions, writs and SLPs since the applicability of GST on Mining Royalty has not yet been decided as the matters are still pending before the Supreme Court and various High Courts across India.

The pendency of the petitions relating to GST/Service Tax on Mining Royalty before the Supreme Court had no impact whatsoever from the MADA judgment can also be seen from the Supreme Court Order dated 24.07.2024 in SLP (C) No. 37326/2017 wherein the Supreme Court had listed these GST on Mining Royalty petitions separately listed just a day before the 9-judges case. The Supreme Court had even appointed the Author of the article as nodal counsel through the said order for completion of pleadings.

Some of the pending cases before the Supreme Court of India and the various High Courts where a stay on payment of GST/Service Tax on Mining Royalty was granted are provided herein below for clarification purposes: 

  • Supreme Court- Lakhwinder Singh v. UOI and Ors. (W.P. (C) 1076/2021) Order dated 04.10.2021. [The Writ Petition was withdrawn from the Supreme Court by leave of the Court and a favourable interim order has been passed by the MP High Court (W.P. No. 5027/2017) Order dt. 10.08.2022.]
  • Karnataka High Court- B and B Stones v. Union of India & Ors. (WP 1353/2022) Order dt. 22/11/2022.
  • Lucknow High Court- Associated Commerce v. Union of India and Ors. (Writ Tax 11/2022) Order dt. 28.1.2022 and
  • M/S Ashish Pandey v. UOI and Ors. (Writ Tax 93/2022) Order dt. 16.05.2022.

In a nutshell, the sum and substance of what has been detailed out above is that the GST/Service Tax-compliant miners in India have not been directed by the Supreme Court vide the 9-judges bench judgment in MADA passed on 24.07.2024 to make the GST/Service Tax on Mining Royalty payments and the said matters are pending adjudication before the Supreme Court and the interim orders passed in those cases are very much alive.