Sidhi Ganesh Rodi Suppliers vs. State Of Rajasthan

Held

The Court held that since the respondents accepted that the reverse charge mechanism is applicable to royalty payments for mining activities and this was supported by their pleadings, there was no need for further adjudication. The Court found that the respondents' clarification that leaseholders are required to pay GST under the reverse charge mechanism, as per the notification dated June 28, 2017, and that their liabilities would not be affected by the contested letter or subsequent amendments, resolved the issue. Consequently, the Court allowed the writ petitions. The letter dated November 8, 2017, issued by the Finance (Tax) Department, Government of Rajasthan, was quashed and set aside. Any subsequent letters issued in pursuance of this letter were also deemed quashed.

Facts

The petitioners, who are mining lease holders, filed writ petitions challenging a letter dated November 8, 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. The respondents, including the State of Rajasthan and its departments, clarified that royalty paid for mining activities is subject to GST under the reverse charge mechanism, as per notification dated June 28, 2017. They stated that leaseholders are required to pay GST under reverse charge and their liabilities would not be affected by the contested letter or subsequent amendments.

Key Issues

1. Whether the letter dated November 8, 2017, issued by the Finance (Tax) Department, Rajasthan government, authorizing Royalty Contractors to collect GST @ 18% as forward charges on royalty collected on behalf of the Government, is contrary to the provisions of Section 9(3) of the CGST Act, 2017, read with notification No. 13/2017 Central Tax (Rate) dated June 28, 2017? Petitioner's contention: The petitioners argued that the letter was against Section 9(3) of the CGST Act, 2017, and notification No. 13/2017. They also referred to Section 2(105) of the CGST Act, 2017, defining 'Supplier', to argue that the Royalty Contractor was acting as an agent. Respondent's contention: The respondents clarified that Royalty Contractors are appointed solely to collect royalty on behalf of the Government without any supply of natural resources. They further stated that royalty paid for mining activities is chargeable under notification dated June 28, 2017, requiring leaseholders to pay GST under the reverse charge mechanism. They asserted that the existing procedure for filing GST returns and payment under reverse charge would continue, and the liabilities of leaseholders would remain unaffected.