Gordhan Das vs. State Of Rajasthan And Ors.

Held

The Court held that the respondents accepted that the reverse charge mechanism is applicable and that leaseholders are required to pay GST under this mechanism. The respondents also clarified that the existing procedure for filing GST returns and paying GST under reverse charge would continue, and the liabilities of the leaseholders would not be affected by the amended notification dated 26.07.2018. Since the respondents did not contest the applicability of the reverse charge mechanism and supported it with their pleadings, the Court found no reason for further adjudication. Consequently, the Court quashed and set aside the letter dated 08.11.2017 issued by the Finance (Tax) Department, Government of Rajasthan, and any subsequent letters issued in pursuance thereof. The ratio decidendi is that if the tax liability is correctly placed under the reverse charge mechanism and accepted by the revenue, any attempt to collect it as forward charge by an intermediary without a supply would be illegal.

Facts

The petitioners, engaged in mining and registered leaseholders, challenged a letter dated 08.11.2017 issued by the Finance (Tax) Department, Rajasthan government. This letter authorized Royalty Contractors (ERCC Contractors) to collect GST at 18% as forward charges on royalty collected on behalf of the government. The petitioners argued this created a double burden and was contrary to law. The respondents, including the State of Rajasthan and its departments, clarified that ERCC Contractors are appointed solely to collect royalty from mining leaseholders without any supply of natural resources. They further stated that leaseholders are required to pay GST under the reverse charge mechanism as per notification dated 28.06.2017, and this liability would not be affected by the amended notification dated 26.07.2018.

Key Issues

1. Whether the letter dated 08.11.2017, authorizing Royalty Contractors to collect GST as forward charges on royalty, is contrary to Section 9(3) of the CGST Act, 2017 and notification No. 13/2017 Central Tax (Rate) dated 28.06.2017? Petitioner's contention: The petitioners argued that the impugned letter was against the provisions of Section 9(3) of the CGST Act, 2017, read with notification No. 13/2017 Central Tax (Rate) dated 28.06.2017. They also referred to Section 2(105) of the CGST Act, 2017, defining 'Supplier', to support their claim that the contractor was not the supplier in this context. Respondent's contention: The respondents clarified that Royalty Contractors are appointed to collect royalty on behalf of the government without any supply of natural resources. They asserted that leaseholders are liable to pay GST under the reverse charge mechanism as per the notification dated 28.06.2017, and this existing procedure would not be affected.