Simplified Explanation of the Judgment

The Patna High Court, in a common judgment delivered on 18 April 2025, has upheld the imposition of Goods and Services Tax (GST) at 18% on royalty paid for mining rights, particularly for sand mining, under the Reverse Charge Mechanism (RCM).

This decision came in a batch of writ petitions filed by several companies and individuals engaged in mining activities in Bihar. The petitioners had participated in government auctions to secure rights to mine sand from specified areas (sand ghats) for a fixed term, paying substantial annual royalty amounts to the State Government.

Under Bihar’s Sand Policy, the settlement amount for mining rights was determined for a five-year term, with yearly payments increasing by 20% over the previous year. Initially, under the Bihar Value Added Tax (VAT) regime, a 5% VAT was applicable. However, with the introduction of GST in July 2017, the classification and tax rate applicable to such royalties became the subject of dispute.

The petitioners contended that the royalty they paid was not consideration for a taxable service but rather a statutory impost, akin to a tax on mineral rights. They argued that:

• Mining rights should be treated like liquor licences, which have been exempted from GST under a special notification issued in 2019.
• Article 246A of the Constitution could not be used to override the exclusive State power under Entry 50 of List II (Seventh Schedule) to levy taxes on mineral rights.
• Royalty is a hybrid payment—partly a fee for services, partly compensation for loss of minerals—and should not be taxed in its entirety.
• Where mining rights were granted before GST came into force, but payments continued after, GST should not apply.
• The correct classification of services under GST would attract a lower rate of 5% until December 2018.

Initially, the Bihar Authority for Advance Ruling accepted the petitioners’ view that the service fell under Service Accounting Code (SAC) 997337 (licensing services for right to use minerals), attracting 5% GST until December 2018 and 18% thereafter. However, the State tax department appealed, and the Appellate Authority for Advance Ruling overturned this, holding that the correct GST rate was 18% from July 2017 onwards.

The petitioners challenged this appellate ruling before the High Court, seeking exemption or lower taxation.

The High Court, after detailed consideration, rejected the petitions and upheld the Appellate Authority’s decision. It found that:

• Grant of mining rights constitutes a “supply” under GST law and is taxable.
• Royalty is consideration for the right to exploit minerals, not merely a regulatory fee.
• The 2019 exemption for liquor licences was a policy decision and could not be automatically extended to mining rights.
• Article 246A grants concurrent taxing power to both the Union and States for GST, notwithstanding State exclusivity over mineral rights under Entry 50.
• Payments for mining rights granted before GST but continuing after its commencement are still taxable under GST for the post-July 2017 period.
• The correct classification for the service is SAC 997337, attracting 18% GST as per the amended GST rate notification.

In effect, the Court confirmed that all royalty payments for mining rights after 1 July 2017 are subject to GST at 18% under the Reverse Charge Mechanism, with the liability falling on the mining lessee.

Significance or Implication of the Judgment

This judgment has far-reaching implications for the mining sector in Bihar and across India:

• It cements the position that royalty for mineral rights is fully taxable under GST at 18%, irrespective of when the mining lease was originally granted.
• It reinforces the principle that GST’s constitutional framework under Article 246A allows concurrent taxation powers, even in areas previously reserved for the States.
• The decision draws a clear line between policy-driven exemptions (like liquor licences) and other taxable supplies, preventing automatic extension of such benefits.
• Businesses involved in mining must factor in the additional GST burden in their cost calculations, potentially impacting sand and mineral prices for construction and infrastructure sectors.
• The ruling discourages prolonged litigation on the classification of such payments, providing clarity for tax compliance.

Legal Issue(s) Decided and the Court’s Decision with Reasoning

• Whether grant of mining rights is a “supply” under GST law:
  ✅ Yes. The Court held that granting mining rights constitutes a taxable supply of services under Section 7 of the CGST/BGST Acts.
• Whether royalty is a statutory impost akin to a tax on mineral rights, and therefore outside GST:
  ❌ No. Royalty is consideration for the right to use/exploit minerals, and thus falls within GST’s scope.
• Whether GST on mining rights violates Article 14 by treating liquor licences differently:
  ❌ No. The Court ruled the liquor licence exemption was a special policy measure and not discriminatory in a constitutional sense.
• Whether Article 246A allows Centre and States to tax mineral rights despite Entry 50, List II:
  ✅ Yes. The non-obstante clause in Article 246A grants concurrent GST power, even over matters in the State List.
• Whether GST applies where mining rights were granted before GST but payments made after:
  ✅ Yes. GST applies to payments for the post-implementation period.
• Correct GST rate for royalty:
  ✅ 18% from 1 July 2017 onwards under SAC 997337.

Case Title

Broad Son Commodities Pvt. Ltd. & Ors. vs. Union of India & Ors.

Case Number

Civil Writ Jurisdiction Case No. 3531 of 2022 and connected matters

Coram and Names of Judges

Hon’ble Mr. Justice Rajeev Ranjan Prasad
Hon’ble Mr. Justice Sourendra Pandey

Names of Advocates and Who They Appeared For

• For Petitioners: Mr. Sujit Ghosh, Sr. Advocate, with Mr. Suraj Samdarshi, Mr. Avinash Shekhar, Mr. Vijay Shanker Tiwari, Ms. Abhilasha Jha, Ms. Simran Kumari, and others (in connected matters, other advocates appeared for respective petitioners)
• For State of Bihar: Mr. Vikas Kumar, Standing Counsel (SC-11) and others
• For Union of India: Dr. Krishna Nandan Singh, Sr. Advocate, with Mr. Anshuman Singh, Sr. SC (CGST & CX), Mr. Shivaditya Dhari Sinha, Advocate

Link to Judgment

a5272f4a-281d-4e46-8956-51c1ab86f881.pdf

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