Telangana HC Seeks Reply on GST Levy Over Mining Royalty

Telangana HC Seeks Reply on GST Levy Over Mining Royalty

Issue: To determine the constitutional and legal validity of levying Goods and Services Tax (GST) on deductions made towards mining royalty, seigniorage, District Mineral Foundation (DMF), and State Mineral Exploration Trust (SMET) payments, particularly in light of a recent Supreme Court ruling.

Facts:

• A division bench of the Telangana High Court heard a writ petition filed by M/s PLR, NCC, NECL Joint Venture, a firm involved in major infrastructure and irrigation projects (including Kaleshwaram and Palamuru Lift Irrigation Schemes).
• The petitioner challenged the imposition of GST on mining royalty and related payments.
• The petitioner’s counsel cited the recent nine-judge bench judgment of the Supreme Court in Mineral Area Development Authority vs Steel Authority of India (2024), which ruled that royalty on mineral mining does not constitute a tax.
• The Supreme Court also ruled that including licensing services for the right to use minerals within the ambit of GST is impermissible.

Decision:

Taking note of the submissions and the Supreme Court precedent, the Telangana High Court issued notices to the Central Tax, GST authorities, and the state government, directing them to file their counter-affidavits within three weeks.

Key TakeDowns:

• Challenging GST on Royalty: The petition is a direct challenge to the practice of levying GST on the entire stream of payments (royalty, DMF, SMET) associated with mineral rights, a long-standing point of contention since the inception of GST. * SC Precedent Cited: The core legal argument relies on the Supreme Court’s Mineral Area Development Authority judgment, which clarified the constitutional nature of royalty payments, stating they are not a form of tax.
• Impact on Infrastructure: The ruling is significant for major infrastructure companies like the petitioner, who incur large royalty payments, as the final judgment will determine whether GST is an allowable levy on these input costs.
• Call for Justification: The High Court’s notice requires the tax authorities to legally justify the continued imposition of GST on mining royalty payments despite the clear pronouncements of the Supreme Court.