Summary: Supreme Court in Mineral Area Development Authority of India overturned its previous ruling in India Cements, which had ruled that royalty is a tax and therefore GST could not be imposed on it. This decision revived the levy of GST on mining royalties, with an 18% GST on reverse charge basis for the service recipient and 5% GST on output supplies. No refunds are available for inverted rate supplies. The Court applied this decision retroactively from April 1, 2005, allowing recovery in 12 yearly installments and waiving interest and penalties. Taxpayers can seek similar relief and apply for waivers of interest and penalties by paying the tax by March 31, 2025. Immediate action is recommended.
Summary: Supreme Court in Mineral Area Development Authority of India overturned its previous ruling in India Cements, which had ruled that royalty is a tax and therefore GST could not be imposed on it. This decision revived the levy of GST on mining royalties, with an 18% GST on reverse charge basis for the service recipient and 5% GST on output supplies. No refunds are available for inverted rate supplies. The Court applied this decision retroactively from April 1, 2005, allowing recovery in 12 yearly installments and waiving interest and penalties. Taxpayers can seek similar relief and apply for waivers of interest and penalties by paying the tax by March 31, 2025. Immediate action is recommended.
Supreme Court in Mineral Area Development Authority of India on 25-07-24 has overruled its earlier ruling in India Cements where in it was stated that royalty is a tax and tax can not be levied on tax.
Due to India Cements Supreme Court in Lakhwinder Singh and various high courts stayed the recovery of gst on mining royalty, where in revenue supported by Circular 164/20/2021-GST dated 06-10-2021 is levying gst @ 18% on reverse charge basis.
While the service recipient is liable to pay tax @ 18%, output supplies are chargeable to tax @ 5%. Further no refund under inverted rated supplies is available on input services.
While supreme court has also applied the Mineral Area Development Authority retrospectively since 01-04-2005 in respect of tax on mining under entry 50 of List II, recoverable in 12 yearly instalments, the interest and penalty has been waived, vide another pronoucement on 14-08-2024, overruling the prospective application of decision in Mineral Area Development Authority rendered on 27-07-2024
Under such situation, the notices of gst on mining royalty may stand revived and taxpayers may seek similar relief for payment of gst in instalments with waiver of interest and penalty.
In appropriate cases, resort to section 128A can be taken for waiver of interest and penalty by payment of tax till 31-03-2025.
The matter however requires redressal at earliest