Madras HC Stays GST Recovery on Seigniorage Fees & Mining Leases Pending SC Decision

Madras High Court granted stay on the recovery of GST on Seigniorage Fees and Mining Leases because the issue was pending before the Supreme Court
Summary: The Madras High Court, in the case of M/s C. Srinivasa Moorthy v. Deputy State Tax Officer, granted a stay on the recovery of GST on seigniorage fees and mining leases, pending a decision by the Supreme Court’s Nine Judge Constitution Bench. The petitioner, M/s C. Srinivasa Moorthy, had challenged the GST liability communicated for the fees and lease payments made to the government. The petitioner relied on Notification No. 13/2017-Central Tax (Rate), which exempts GST on certain services, including mining leases. The High Court referred to a similar case, M/s Tvl. A. Venkatachalam v. Asstt. Commissioner, where the court had also kept adjudication orders in abeyance until the Supreme Court decided on the nature of royalty payments. The Madras High Court allowed the petitioner four weeks to respond to the intimation, with further proceedings to be held in abeyance. The issue of whether royalty payments for mining operations constitute a taxable service under GST is central to the case, with the final decision expected from the Supreme Court.
The Hon’ble Madras High Court in the case of M/s C. Srinivasa Moorthy v. Deputy State Tax Officer, Intelligence, Hosur [Writ Petition No. 12426 of 2024 dated June 07, 2024] held that no recovery of GST on seigniorage fee and mining lease until the Nine Judge Constitution Bench of the Hon’ble Supreme Court takes a decision.
Facts:
M/s C. Srinivasa (“the Petitioner”) had challenged the intimation communicating the GST liability in respect of both seigniorage fee and mining lease amount paid by the Petitioner to the Government.
The Petitioner had relied on the Notification No. 13/2017- Central Tax (Rate) dated June 28, 2017 which claims that the GST on the mining lease and the services supplied by the Central, State and Government or local authority to a business entity by way of renting of immovable property is excluded from the GST.
Issue:
Whether GST is applicable on seigniorage fee and mining lease?
Held:
The Hon’ble Madras High Court in the case of Writ Petition No. 12426 of 2024 held under as:

Relied on, the case M/s Tvl. A. Venkatachalam v. Asstt. Commissioner [Writ Petition No. 30974 0f 2022 dated January 08, 2024] wherein the Hon’ble Madras High Court, Division Bench ordered the petitioners to submit their objections/representations within four weeks to the show-cause notices sent by the authorities concerned. Thereafter, the authorities shall proceed with the adjudication on the merits and in accordance with law after affording reasonable opportunity to be heard and lastly, held that the orders of adjudication shall be kept in abeyance until the Nine Judge Constitution Bench decides the issue as to the nature of royalty.

Held that, the petition was liable to be disposed of on the same terms insofar as it relates to either the issue of seigniorage fee or mining lease. Consequently, the Petitioner was permitted to submit his reply to the intimation within a maximum period of four weeks.

Our Comments:
In pari materia case, before the Hon’ble Rajasthan High Court, M/s Udaipur Chambers of Commerce and Industry v. Union of India [D.B. Civil Writ Petition No, 14578/2016 dated October 24, 2017] held that the royalty is nothing but a “consideration” to have mining operations in the leased area on execution of a mining lease. It is a part of agreement arrived between the parties to have lease of a mining area to undertaking mining operations. The royalty being “consideration” certainly places assignment of right to use natural resources deposited in the leased area as a “service” as defined under Section 65-B (44) of the Finance Act 1994, according to which, any activity carried out by a person for another for consideration is a service. The finding arrived by us as above is sufficient to say that the notification dated 13.4.2016 is not at all in conflict with its enabling Act i.e. the Finance Act, 1994 and the same does not suffer from any illegality.
However, Special Leave Petition (“SLP”) was filed before the Hon’ble Supreme Court in the case of M/s Udaipur Chambers of Commerce and Industry v. Union of India [ Special Leave Petition No. 37326 of 2017 dated January 04, 2022] has granted an interim stay not only in respect of royalty but also in respect of mining lease. Here, the nine-judge bench was scheduled to hear the batch of cases. The Hon’ble court has stated that orders payment of service tax for grant of mining lease/royalty by the petitioners shall remain stayed.
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