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Udaipur Chambers of Commerce and Industry Versus The Union of India, The Superintendent, Central Excise And Others

2017 (10) TMI 975 - RAJASTHAN HIGH COURT

Mining lease - levy of service tax - royalty - whether the royalty under the Act of 1957 is a “consideration” or not and further if that is “consideration”, then what would be the effect pertaining to payment of service tax? - 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 bei .....

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ease granted is only to excavate mineral from the leased area and that activity at the most can be physical `transfer of property by its “renting” as prescribed under Section 65(90a) of the Act of 1994, but not the transfer of title in immovable property. Section 65(90a) pertains to transfer of immovable property by renting and that includes leasing of immovable property for use in furtherance of business and commerce. The absence of the word “title” in this provision is quite important and that .....

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ed area. - Petition dismissed - decided against petitioner. - D.B. Civil Writ Petition No. 14578 / 2016, D.B. Civil Writ Petition No. 2706, 2707, 2708, 2715, 2717, 2718, 2878, 2879, 2880, 3032, 3033, 3034, 4162 / 2017 - Dated:- 24-10-2017 - M/s. Mahaveer Trading Company, M/s. Aravali Minerals & Chemical Industries Pvt. Ltd., M/s. Soni Marbles, M/s Achibavri Soapstone & Dolomiote Mine, M/s. Paras Mineral Industries, M/s. Rajasthan Barytes Ltd., M/s Ashoka Minerals, M/s. Nalwaya Minera .....

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o Shri Hasmat Ali, Mohammad Ayyub Khan Son of Shri Gulbaz Khan, Syed Sajid S/o Shri Mushtaq Ali, Mohammad Sabir Khan S/o Shri Gulbaz Khan, Mohammad Saeed Khan S/o Habibullah Khan, Mohammad Saeed Khan of Late Mohammad Sher Khan, M/s Perwa Minerals, Sherwa Minerals Private Limited, M/s M W Mines Private Limited Versus The Union of India, The Superintendent, Central Excise, The Assistant Commissioner, Central Excise Department Govind Mathur And Vinit Kumar Mathur, JJ. For the Petitioner : Mr. M.S.S .....

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granted by Government in the context to notification No.25/2012-ST dated 20.6.2012 read with notification NO.22/2016 dated 13.4.2016, issued by the Government of India. The facto legal background necessary to be noticed to examine the issue under consideration is that the parliament by way of the Finance Act, 1994 (hereinafter referred to as the Act of 1994 ) imposed service tax on the services defined and described under Section 65-B(44). The definition since then subjected to amendments time t .....

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n in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. Explanation 1. - For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to.- (A) the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Me .....

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on. Explanation 2.- For the purposes of this Chapter,- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct person. Explanation 3.- A person carrying on a business through a branch or agency or representational office in any territory shall be treated .....

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The following shall constitute declared services, namely:- renting of immovable property construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion- certificate by the competent authority. Explanation.- For the purpose of this clause.- (I) the expression competent authority means the Government or any authority authorized to .....

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sion construction includes additions, alterations, replacements or remodeling of any existing civil structure; temporary transfer of permitting the use or enjoyment of any intellectual property right; development, design, programming, customization, adaption, upgradation, enhancement, implementation of information technology software; agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; transfer of goods by way of hiring, leasing, licensing or .....

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subsequent transfers thereof. It is also relevant to mention that Section 65 of the Act of 1995 clarifies the transfer of immovable properties and i.e. as under:- [90a] renting of immovable property includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course of furtherance of business or commerce but does not include - (i) renting of immovable property by a religious body or to a religious body; or a. renting of immovable property to an .....

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mmovable property includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property;] With the enactment of the Act of 1994 the Central Government derived its authority from the residuary Entry 97 of List-1 (Union List) for levying tax on services. To have legal backup to introduce such tax, the parliament by way of constitutional amendment (constitution) (eighty eighth amendment) Act, 2003 introduced A .....

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ng production of goods and provision of services. Invoking powers under sub-section(1) of Section 93 of the Act of 1994 and in super-session of notification No.12/2012- ST dated 17.3.2012, the Government of India issued and published a notification No.25/2012-ST dated 20.6.2012 exempting certain taxable services from service tax. By an other notification No.22/2016-ST dated 13.4.2016, the Government of India on being satisfied that it would be necessary in public interest to further amend the no .....

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he Government of India, Ministry of Finance, on the same day, issued a clarification regarding levy of service tax on services provided by Government or a local authority to business entities. As per the Entry-9 of the circular aforesaid, service tax is payable on such installments in Rule 7 of the Taxation Rules, 2011 as amended vide notification No.24/2016-ST dated 13.4.2016. The exemption given vide notification No.25/2012 dated 20.6.2012 as amended on 13.4.2016 pertains to service tax payabl .....

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d Minerals (Development and Regulations) Act, 1957 (hereinafter referred to as the Act of 1957 ) is subject to payment of service tax and legality of the same is questioned in these petitions. The fundamental argument advanced on behalf of the petitioners is that the impugned notification dated 13.4.2016 and its clarification is ultra-vires to provisions of the enabling Act i.e. the Finance Act 1994 as amended time to time. It is asserted that the liability to pay service tax arises, if such act .....

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subsequent transfers thereof. According to learned counsel appearing on behalf of the petitioners the grant of mining lease could have not been brought within the definition of service or declared service by executive fiat without making necessary amendments in the definition of service or declared service under the Act of 1994. On behalf of the petitioners, it is also submitted that while executing mining lease no service is rendered either by the State Government or the mining lease holder, a .....

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ny activity for the State Government but i.e. a transfer of assignment of rights of the State Government to excavate the mineral subject to payment of royalty. It is also urged that levy of service tax on payment of royalty is bad as grant of mining lease and its execution by the Central Government or the State Government, as the case may be, is a statutory act and not a service. The payment of royalty by a lessee is also a statutory obligation and i.e. to be paid in proportion to the mineral ex .....

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ce tax w.e.f. 1.4.2016. In the case in hand, the State Government, while granting mining lease, enables a lessee to excavate minerals subject to payment of royalty/licence fee and as such i.e. nothing but service provided by the Government to the lessee. It is asserted that the exemption is only for transfer of title in immovable property, by way of sale, gift or any other manner and not to transfer by way of executing a lease assigning rights to exploit mineral for time being. Such an activity, .....

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of any mineral removed or consumed by him for the leased area at the rate specified in schedule to the said Act. This provision indicates that the payment of royalty is necessary for continuing to hold mining lease and, therefore, the Government subject to payment of royalty grants mining lease assigning lessee a right to explore and exploit minerals in an area and such assignment of immovable property is a service. A rejoinder to the reply is given by the petitioners, mainly reiterating whateve .....

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is apparent as that involves grant of rights to use natural resource by the Government subject to payment of royalty. Under the notification impugned, while the one time charge for grant/assignment of right to use natural resource issued prior to April 1, 2016 has been kept out of the levy of service tax, but i.e. payable on periodic payments made to the Government/local authority, as such, the payment of royalty by the petitioners, who are having lease to excavate mineral is subject to payment .....

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use of Section 66-E pertains to assignment of natural resources. It is asserted that the impugned notification dated 13.4.2016, in light of whatever stated above, is in conflict with the enabling Act, thus, deserves to be declared bad. We have scaled merits of the argument advanced by taking into consideration all relevant provisions. As per Section 9 of the Act of 1957, the holder of a mining lease notwithstanding anything contained in the instrument of lease or in any law in force is supposed .....

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t of royalty is subject to penalty also under the Act of 1957 and the Rules framed thereunder. Precisely, we are required to examine that the royalty under the Act of 1957 is a consideration or not and further if that is consideration , then what would be the effect pertaining to payment of service tax? Under the Act of 1957, no mining lease would be granted without adhering the procedure given under Sections 10 to 12. The prospecting licence and mining leases are further regulated by the Rules .....

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by the State Government in the prescribed format and further after adhering a definite procedure, mining lease is required to be granted and executed between the parties. The mining lease executed is nothing but a contract to undertake mining operations in the leased mining area. As already stated, the mining operations, as per the conditions of mining lease deed, are subject to payment of royalty. According to Section 2(d) of the Indian Contract Act, 1872, when at the desire of the promisor, th .....

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parties and also an essential reason for a party entering into contract for exchange of any thing of value by each party. Taking into consideration all these principles relating to consideration , we are of considered opinion 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 considerati .....

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conclusion that the activity in question is a service, there is no need to examine the other argument advanced by counsel for the petitioners to challenge the notification aforesaid on the ground that the assignment of right to use natural resource i.e. the mineral deposited in the leased area is also not a declared service . An effort is also made to bring assignment under consideration in exclusion category with submission that by awarding lease the State transfers its title in goods in other .....

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