M/S. Harish Clays, A Registered Partnership Firm , Registered Office Golcha Gardens , Agra Road vs. The State Of Rajasthan

Held

The Court allowed the writ petitions. The primary issue revolved around the legality of the Finance Department's letter authorizing Royalty Contractors to collect GST as forward charges. The respondents clarified that the royalty paid for mining activities falls under the reverse charge mechanism as per Notification No. 13/2017 dated 28.06.2017, meaning the leaseholders are liable to pay GST under reverse charge. Since the respondents accepted the reverse charge mechanism and did not contest it, and this position was supported by their pleadings, the Court found no reason for further adjudication. 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 the collection of GST on royalty from mining activities should adhere to the reverse charge mechanism as stipulated by law, and any directive to collect it as forward charges by an intermediary is invalid.

Facts

The petitioners, engaged in mining and registered leaseholders, challenged a letter dated 08.11.2017 issued by the Finance (Tax) Department, Government of Rajasthan. 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 ERCC Contractors were appointed by the Government to collect royalty from mining lessees without supplying natural resources. The royalty collected was pre-determined and fixed by the Government.

Key Issues

1. Whether the letter dated 08.11.2017, authorizing Royalty Contractors to collect GST @ 18% 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 arguments: The petitioners contended that the impugned letter was against the provisions of Section 9(3) of the CGST Act, 2017 and the relevant notification. They argued that the definition of 'Supplier' under Section 2(105) of the CGST Act, 2017, which includes an agent acting on behalf of the supplier, was relevant. They also argued that the letter created a double burden on the miner/leaseholder/end-user. Revenue's arguments: The respondents clarified that Royalty Contractors are appointed exclusively for collecting royalty on behalf of the Government from mining leaseholders without the supply of natural resources. They further stated that the royalty paid for mining activities is chargeable under the notification dated 28.06.2017, requiring leaseholders to pay GST under the reverse charge mechanism. They asserted that the liabilities of leaseholders would not be affected by the amended notification dated 26.07.2018.