The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that J.K. Lakshmi Cement is liable to pay service tax under Reverse Charge Mechanism (RCM) on the amount paid to the state govt. trusts for rehabilitating, area, and people in and around the leased mine.
The bench of Dr.Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that the lease-holder/ the polluter is required to pay an amount, equivalent to certain percentage of amount of royalty paid to the government/ lessor, to District Mineral Foundation (DMF) and to the National Mineral Exploration Trust (NMET) requiring them to render them the activity of rehabilitating, the area, and the people in and around the leased mine.
M/s J K Lakshmi Cement, is the appellant engaged in manufacture of cement. Appellants are also holding service tax registration for providing/ receiving of Transport of Goods by road/ GTA services, legal consultancy services, Manpower Recruitment/Supply agency service, Works Contract service, Renting of immovable property service, Intellectual Property rights other than copyright and other taxable services other than the 119 listed etc.
During the course of audit of records of appellants, it was observed that appellant has paid Royalty on excavation of natural resources in terms of section 9 of Mines and minerals ( Development and Regulation) Act,1957.
They have also discharged their service tax liability on it under reverse charge mechanism.
However, over and above the said royalty amount as was required to be paid for mining of any natural resource, the appellant has paid sums @ 30% and 2% of the Royality amount to the state government on account of “District Mineral Foundation (DMF)‟ & “National Mineral Exploration Trust (NMET) as provided under section 9B & 9C respectively of the Act.
Department observed that appellants have failed to discharge their service tax liability on the said two amounts for which appellants were liable under Reverse Charge Mechanism.
It was observed that an amount of Rupees 19,94,78,400/- towards 30% of the royalty and an amount of Rupees 1,32,98,560/- towards 2% of the Royalty as was paid by the appellant on account of DMF & NMET respectively, during the period from 01.04.2016 to 30.06.2017. But service tax accounting, to Rupees 3,19,16,544/- was not paid under RCM.
The show cause notice was served on the appellant proposing the discovery of the amount along with proportionate interest and the appropriate penalties.
The appellant submitted that the main finding in the impugned order that the amounts paid by the appellants for the two trusts/ funds were in the nature of royalty, is incorrect. “Royalty‟ is the fee for the right to use minerals, including its exploration and evaluation. The government grants a person mining rights which are basically right for exploration of minerals. This amounts to service being provided by the state to the licensee which is leviable to service tax. The amount paid as “consideration‟ for such service i.e. grant of such license to the state is called as “Royalty‟. The appellants are paying service tax on the said amount of Royalty under reverse charge mechanism.
The appellant contended that in case of payments to the DMF and the NMET there is no corresponding service provided to the appellants either by the state or by the DMF or the NEMT, hence, those amounts do not qualify to be called as consideration for taxable service.
The department contended that the amounts paid to the District Mineral Foundation (DMF) and to the National Mineral Exploration Trust (NMET) are akin to ‘Royalty’ and hence service tax is payable on these payments also as is in the case of royalty. Hence, there is no infirmity in the order under challenge when the service tax demand qua the amount paid to DMF & NMET is confirmed along with the interest. Since the non-payment of service tax resulted into evasion of revenue, penalty has also been rightly Imposed.
Royalties in respect of mining leases-
The holder of a mining lease, granted before the commencement of this act shall, notwithstanding anything contained in the instrument of lease or in any law in force at such commencement, pay royalty in respect of any mineral removed or consumed by him or by his agent, Manager, Employee, Contractor or Sub Lessee from the Le area after such commencement, at the rate for the time being specified in the second schedule in respect of that mineral.
The holder of a mining lease granted on or after the commencement of this act shall pay royalty in respect of any mineral removed or consumed by him or by his agent, Manager, Employee, Contractor or Sub Lessee from the Le area after such commencement, at the rate for the time being specified in the second schedule in respect of that mineral.
The royalty is a payment to mineral rights holder, which generally is the government, from mineral producer, who is mine Lessee, in consideration for the extraction of valuable and non-renewable natural resources. Levy of Royalty on minerals is otherwise a universal concept based on the premise that the mineral resources are “wasting assets”, “one-crop- product” or “once only endowment”.
The tribunal has held that the amount paid to both these trusts is nothing but the consideration paid for receiving the said service. Since DMF & NMET are the creations of the state government, as apparent from above quoted sections; 9B & 9C of the Mines Act, both these trust are the „governmental authority‟ in terms of clause 2(s) of notification number 25/ 2012 dated 20.06. 2012. Resultantly the appellant is liable to pay service tax under reverse charge mechanism vis-à-vis the amounts paid to both these trusts in terms of notification number 30/ 2012 dated 20.06. 2012.
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Case Details
Case Title: M/s. J.K. Lakshmi Cement Ltd. Versus Commissioner of Central Excise & CGST
Case No.: Service Tax Appeal No.50984 Of 2020
Date: 28/11/2024
Counsel For Appellant: Ajay Prasad
Counsel For Respondent: Manoj Kumar
