2021 (7) TMI 1473 - HC - GST

Classification of service - mining services - right to use minerals including exploration and evaluation - HELD THAT - The petitioner shall file appeal within a period of eight weeks from today. The statement of the petitioner is aceepted that ten per cent of the total amount being condition prerequisite for hearing of the appeal already stands deposited. If that were so the appeal shall be decided on merits. However if the amount is not deposited for whatever reason(s) same shall be done before the next date. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter were:

(a) Whether the order dated 17.09.2020 classifying mining activity, specifically licensing services for the right to use minerals including exploration and evaluation, as taxable at 9% CGST and 9% BGST under the residual entries of serial no. 17 of Notification No. 11/2017 (as amended) is valid and sustainable.

(b) Whether licensing services for the right to use minerals including exploration and evaluation fall specifically under heading 9973 (licensing or rental services with or without operator) as per the relevant notifications issued under the CGST Act, thereby attracting a different tax treatment.

(c) Whether the classification of mining activity under the residual entry attracting 9% CGST and 9% BGST results in an inverted duty structure, thus entitling the petitioner to a refund and raising constitutional questions on the levy of higher tax rates on like goods.

(d) Ancillary reliefs related to the above classification, including the legality of coercive actions taken during the pendency of the dispute and procedural aspects concerning the appellate process.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of classification of mining activity under residual entries attracting 9% CGST and 9% BGST

The legal framework governing this issue derives primarily from the Central Goods and Services Tax Act, 2017 (CGST Act), the Bihar Goods and Services Tax Act, 2017 (BGST Act), and the relevant notifications issued under these statutes, particularly Notification No. 11/2017 (Central Tax Rate) dated 28.06.2017 and its subsequent amendments.

The Court noted that the respondent authorities had classified mining activity, encompassing licensing services for the right to use minerals including exploration and evaluation, under the residual entry at serial no. 17 of the said notification, attracting a tax rate of 9% CGST and 9% BGST effective from 01.01.2019.

The petitioner challenged this classification, contending that it was erroneous and sought quashing of the order on this ground.

The Court did not express any opinion on the merits of this classification, instead emphasizing procedural propriety and the need for the matter to be adjudicated by the competent Appellate Authority after due process. The Court's order directed the petitioner to file an appeal within eight weeks and stipulated that the appeal be decided on merits after compliance with principles of natural justice.

The Court also accepted the petitioner's statement that ten percent of the total amount, a condition precedent for hearing the appeal, had already been deposited, subject to refund if found excessive.

Thus, the Court's approach was to ensure that the classification issue was adjudicated by the designated appellate forum with full opportunity for both parties to present their case, rather than deciding the classification itself at this stage.

Issue (b): Whether licensing services for the right to use minerals fall specifically under heading 9973

The petitioner argued that licensing services for the right to use minerals, including exploration and evaluation, fall under heading 9973, which covers "licensing or rental services with or without operator," as notified in item 17 of Notification No. 11/2017 and subsequent notifications.

This classification, if accepted, would imply a different tax treatment and potentially a lower tax rate or different regulatory regime.

The Court did not pronounce on the correctness of this classification but left the issue open for determination by the Appellate Authority. The Court's order emphasized that the Appellate Authority must afford adequate opportunity to the parties to place on record all essential documents and materials, thus ensuring a comprehensive examination of this classification question.

By not expressing any opinion on merits, the Court preserved the parties' rights to argue this point fully before the competent forum.

Issue (c): Inverted duty structure and entitlement to refund

The petitioner contended that the classification of mining activity under the residual entry attracting 9% CGST and 9% BGST creates an inverted duty structure, whereby the tax rate on inputs exceeds that on outputs, thereby entitling the petitioner to a refund under the GST regime.

Further, the petitioner raised constitutional challenges to the levy of higher tax rates on like goods, contending that such levy is impermissible.

The Court refrained from adjudicating these substantive issues, leaving them open for determination by the Appellate Authority and other appropriate forums.

The Court's order preserved the petitioner's liberty to challenge any adverse order and to pursue all remedies available under law, thereby maintaining the procedural safeguards necessary for fair adjudication.

Issue (d): Procedural reliefs and interim measures

The Court granted several procedural directions to safeguard the petitioner's interests during the pendency of the appeal:

- The petitioner was directed to file the appeal within eight weeks, with the condition that ten percent of the total amount be deposited as a prerequisite for hearing.

- The Court ordered de-freezing or de-attaching of the petitioner's bank accounts, if attached in connection with the proceedings subject matter of the petition, to be done immediately.

- The Appellate Authority was directed to condone any delay in filing the appeal and to decide the appeal on merits after affording adequate opportunity to the parties and complying with principles of natural justice.

- The parties were to be allowed to place on record all essential documents and materials.

- No coercive steps were to be taken against the petitioner during the pendency of the appeal.

- The Appellate Authority was directed to pass a speaking order assigning reasons, with copies supplied to the parties.

- The appeal was to be decided expeditiously, preferably within two months from the date of filing.

- The petitioner undertook to cooperate fully and not seek unnecessary adjournments.

- The Court expressed hope that proceedings during the Covid-19 pandemic be conducted digitally where possible.

These directions collectively ensured procedural fairness, protection against undue harassment, and timely resolution of the dispute.

3. SIGNIFICANT HOLDINGS

The Court did not express any substantive opinion on the classification or taxability issues, leaving all questions open for decision by the Appellate Authority. The key principles and directions established include:

"We have not expressed any opinion on merits and all issues are left open;"

"The Appellate Authority shall condone the delay, if any, in filing the appeal and decide the appeal on merits after complying with the principles of natural justice;"

"During pendency of the appeal, no coercive steps shall be taken against the petitioner;"

"The Appellate Authority shall pass a speaking order assigning reasons, copy whereof shall be supplied to the parties;"

"The appeal shall be decided on merits expeditiously, preferably within a period of two months from the date of filing of the appeal."

These holdings underscore the Court's commitment to procedural fairness, expeditious disposal, and adherence to natural justice in tax disputes under the GST regime.