GST on Royalty on Minerals excavated from Mines – Constitutional Validity

Goods and Services Tax (GST) was implemented in India on July 1, 2017, with the aim of simplifying the tax structure and increasing tax compliance. However, its implementation has led to various controversies regarding its constitutional validity, especially in cases where the tax is levied on royalty payments made for the extraction of minerals from mines.

The issue of GST on royalty on minerals excavated from mines has been a topic of discussion for quite some time. In this article, we will explore the constitutional validity of levying GST on royalty payments made for the extraction of minerals from mines.

Background

Mining in India is a major economic activity, with the country being the third largest producer of coal and the fourth largest producer of iron ore in the world. The extraction of minerals from mines requires the payment of a royalty fee to the state government for the use of its natural resources.

Before the implementation of GST, the payment of royalty on minerals was subject to various taxes such as VAT, excise duty, and service tax. However, with the implementation of GST, the payment of royalty on minerals is now subject to a single tax.

Constitutional Validity of GST on Royalty on Minerals Excavated from Mines

The constitutional validity of GST on royalty on minerals excavated from mines has been a topic of debate since its implementation. The main issues that have been raised are:

1. Whether royalty on minerals is a tax or a fee

The first issue that needs to be addressed is whether royalty on minerals is a tax or a fee. If it is considered a tax, then it would be subject to the constitutional limitations of Article 265 and Article 246 of the Constitution. However, if it is considered a fee, then it would not be subject to these constitutional limitations.

In the case of State of West Bengal v. Kesoram Industries Ltd. (2004), the Supreme Court held that royalty on minerals is a payment for the use of natural resources and is therefore a fee and not a tax.

2. Whether GST can be levied on royalty on minerals

The second issue that needs to be addressed is whether GST can be levied on royalty on minerals. The Central Government has argued that since royalty on minerals is a payment for the use of natural resources, it falls under the purview of supply and is therefore subject to GST.

However, the state governments have argued that royalty on minerals is a fee and not a consideration for supply of goods or services, and therefore, it cannot be subject to GST.

3. Whether GST on royalty on minerals is a violation of the Constitution

The third issue that needs to be addressed is whether GST on royalty on minerals is a violation of the Constitution. Article 269A of the Constitution provides that GST on goods and services can only be levied by the Central Government and the State Governments in accordance with the recommendations of the Goods and Services Tax Council.

However, royalty on minerals is a subject that falls under the jurisdiction of the state governments. Therefore, the state governments have argued that the Central Government cannot levy GST on royalty on minerals without their consent.

Conclusion

The issue of GST on royalty on minerals excavated from mines is a complex one that requires careful consideration of various legal and constitutional provisions. While the Central Government argues that it falls under the purview of supply and is therefore subject to GST, the state governments argue that it is a fee and not a consideration for supply of goods or services and therefore, cannot be subject to GST.

Ultimately, it will be up to the courts to determine the constitutional validity of GST on royalty on minerals excavated from mines.