| Question And Answer | |
|---|---|
| Subject: | SERVICE TAX ON ROYALTY |
| Category: | GST |
| Querist: | KARAN SHAH |
| Answered by: | Advocate C.B.Thakar |
| Tags: | Royalty, service tax, service tax on royalty |
| Date: | July 17, 2022 |
As per standard practice, the service tax/GST department called for information from mining department of state (gujarat) which in turned provided list of firms (quarries) in whose name royalty is paid. Accordingly the service tax/GST department issued SCN and passed order levying SERVICE TAX ON RCM on royalty paid as per list provided by mining department .
In given case, department had issued SCN and passed order in the name of “A” quarry who had taken land on lease for quarry business from mining department of the state.
But in actual “A” quarry had sub-leased the whole land to “B” quarry who had paid royalty directly to mining department and also claimed royalty expenditure. “A” quarry had neither paid any royalty nor claimed such royalty expense in books.
Only because “A” quarry had originally leased land from mining department, there name was forwarded to service tax/GST department.
What stand should be taken by “A” quarry to avoid service tax demand. I am aware that whether royalty is tax or not question is pending before 9 judge bench of SC. What other stand can be taken in given facts.
When the lease is in name of A, how B can directly pay royalty to Government is not clear. It appears that the royalty may have been paid in name of A. Therefore, the basic liability of RCM falls upon A. It appears that B has also not paid RCM. You can ascertain above fact of payment of RCM by B. If so paid by B, then possibly you can take a plea that since RCM is ultimately paid, no liability should fall on A, as per principle of avoiding double taxation on same amount.
If such facts exist then reliance can also be made on the judgment of Hon. Bombay High Court in case of United Spirits Ltd. vs. State of Maharashtra (Writ Petition (L) no.10092 of 2020 dt.29.4.2022) wherein High Court has held that when buyer has paid tax, vendor is not liable to pay tax. The factual position be seen accordingly.
The other fact appearing from query is that there is sub-lease. Therefore on consideration received by A from B, there may be GST liability on A. This aspect should also be examined.