Tax Vista Your weekly tax recap Edn. 252 - 21st April 2025 Dr. G. Gokul Kishore

 

 

GST payable on royalty on mining of sand - High Court follows MADA judgment

Royalty is not in the nature of tax but consideration - this is the law of the land today. The prayers before the High Court were well-made - to hold grant of mineral concession / mining lease does not amount to provision of any service by the State Government and therefore, GST is not payable under reverse charge mechanism; grant of such concession is merely a statutory function under law; royalty being in the nature of statutory impost is a tax and therefore, it cannot be made exigible further to GST. Disposing a batch of petitions, Patna High Court has followed the Supreme Court judgment in the case of Mineral Area Development Authority [MADA judgment - 2024-VIL-24-SC]. In this case, VAT was paid @ 5% on extraction of sand and later, GST of 5% was paid on royalty under RCM - "licensing services for the right to use minerals including its exploration and evaluation". Initially, the Advance Ruling Authority had held that GST of 18% was payable after 2019.

 

Before the High Court, the taxpayer argued that Article 246A of the Constitution contains non-obstante clause "Notwithstanding" and it seeks to override Article 246 and based on such provision, it may be viewed that though power to levy tax on mineral rights may be with the State Government exclusively, notwithstanding the same, as per Article 246A, the Centre and the State are competent to impose GST on the same taxable event i.e., transfer of mineral right. The taxpayer also cited from MADA judgment that royalty is a consideration paid by the mining lessee to the lessor for enjoyment of mineral rights and also to compensate for loss of value of minerals suffered by the owner of the minerals. Based on this, it was contended that royalty comprises of two components - one towards the service and another towards loss of value of minerals which is a compensation (not subject to tax).

 

The High Court, however, held that most of the arguments were considered by the Apex Court in the MADA judgment and noted that it was held in the said judgment that through the mining lease, the government parts with its exclusive privilege over mineral rights and consideration paid under a contract to the State Government for acquiring exclusive privileges cannot be termed as an impost and since royalty is a consideration paid by the lessee to the lessor under a mining lease, it cannot be termed as an "impost". Though MADA judgment is by 9 Judges Constitution Bench with the majority 8:1 holding royalty is not in the nature of tax, a 13-Judges Bench cannot be ruled out to reconsider the issue at a distant future [2025-VIL-366-PAT].

 

Separate SCNs and separate orders under GST - Using Section 74 to circumvent limitation

The issue of single show cause notice covering multiple years is doing the rounds in the courts and most of the High Courts have adopted the view that such practice is not correct and separate SCN for each financial year should be issued i.e., clubbing is not permissible. A related question was posed before Kerala High Court which dealt with this issue recently. However, the High Court said that in the recent case of Lakshmi Mobiles Accessories, the issue as to whether a composite SCN can be issued and then the proper officer can proceed to pass separate orders for each assessment year was not involved. It noted that while passing adjudication order, the provisions pre-suppose issuance of separate SCNs for various years and the assessee can raise distinct and independent defence against each of the SCNs. Time-limit is also, therefore, distinct in respect of each of the years. Therefore, separate SCNs are required and it quashed the impugned proceedings giving liberty to the department to issue SCNs for each of the years. It appears the above question has not been clearly answered - whether single order can be passed even if multiple SCNs are involved. It seems indirectly it has been answered - when separate SCNs are required, orders would also be separate.

 

An interesting issue considered in this case is use of Section 74 of CGST Act on suppression and extended time-limit when the case otherwise falls under Section 73 only. The Court held that by issuing a composite SCN, the assessing authority cannot bypass the requirement of Section 73 to complete the assessment by falling back on a larger period of limitation under Section 74 and if permitted, it would be colourable exercise of power [2025-VIL-356-KER].

 

Affiliation fee charged by university as statutory levy not exigible to GST

The petitioner-University challenged the show cause notice issued to it for lack of jurisdiction. The department sought to collect GST on affiliation fees received from the colleges on which no GST had been charged. The petitioner claimed that it was exempt as being part of educational service and also challenged the validity and legality of the Circular dated 17.06.2021 and paragraph 2 of the Circular dated 11.10.2024 in so far as they stated accreditation fee etc, as being taxable.

 

The High Court held that the affiliation is undertaken by the University in terms of the requirement of the statute and in discharge of public functions, the fee so collected for affiliation fails to qualify as consideration. Referring to various judgements on what is education, whether common curriculum, systematic learning, education not being restricted to mere learning of alphabets, it held that affiliation fee and grant of affiliation was a means to ensure standardisation and quality and as such it was part of education service. The fee being collected as per statutory provisions and not contractual in nature, would fall under exemption in Entry No. 66 of the Notification No.12/2017-CT (R) since University which grants affiliation is also an educational institution and would include students studying in affiliated colleges.

 

The circular stating that affiliation services by universities to colleges are not by way of services related to the admission of students to such colleges or the conduct of examinations has been held as erroneous by the Court. It is time to amend the notification entry on educational institutions so that this issue is clarified in favour of education sector instead of seeing every sector as revenue-generating machine [2025-VIL-358-GOA].

 

ITC availment and utilisation - Difference echoes in arbitration matters

The terms "availment" and "utilisation" have had a chequered history in litigation relating to tax credit - from Modvat to Cenvat credit regime. In GST regime, it has largely vanished but in certain cases, it is given fresh lease of life. In a contractual dispute and further dispute over arbitral tribunal's award, the Madras High Court has held that availment and utilization of input tax credit (ITC) are two distinct and concepts as held by the arbitral tribunal and the employer who sought to equate the same was not correct. The employer was Integral Coach Factory (ICF) which argued that additional ITC might have accrued to the contractors due to GST rate increase from 5% to 12% and such benefit ought to have been passed on to it.

 

The High Court held that the same is a presumption without evidence and it upheld arbitral award on payment of incremental tax amount withheld by ICF after GST rate change. It said that as per statutory variation clause, the contractors were entitled to full reimbursement of GST amount and there was no accrual of additional ITC due to input tax rate not being changed. The prices quoted at the time of bidding would not have factored in such tax rate change which was made subsequent to date of contract. The High Court further held that ITC is never treated as part of cost and ICAI Guidance Notes provide for treatment as asset. Readers may find the citation of the landmark case of Dai Ichi Karkaria [1999-VIL-02-SC-CE] in this order relating to arbitration petitions. One of the petitions assailing arbitral award against the contractor was also allowed while rejection the petitions filed by ICF [2025-VIL-353-MAD].

 

GSTR-1 returns - Division Bench upholds ruling on rectification

GST department filed appeal before Division Bench of the Madras High Court on the ground that there was no mechanism available to enable taxpayer to rectify clerical errors in filing GSTR-1 returns filed for the period 2017-18. The Single Judge Bench had directed rectification as there was no mala fide and rectification would enable proper reporting so that ITC can be availed by recipients. The department pointed out that though the last date for filing returns were extended during the relevant period, amendment of returns is not possible at this juncture. The Division Bench took note of the recent order of the Supreme Court in Aberdare Technologies [2025-VIL-15-SC] and opted to reiterate that human errors and mistakes are normal and right to correct errors flows from right to do business and the same should not be denied without good justification and software limitation is not a good justification. The appeal by the department has been dismissed.

 

The taxpayer should thank the Apex Court for the recent judgment which has rescued them. Even otherwise, High Courts have been holding that rectification of returns, opening of portal, etc., are required and petitions are being allowed. It may be time to rethink of such time-limit for rectification along with an increase in the time-limit for availing ITC when the limitation to issue SCN for normal period has been extended from this year [2025-VIL-361-MAD].

 

JDA without supply of TDR - GST on TDR not applicable

The petitioner had been appointed as a developer to develop and construct multi-storied apartment and consideration was fixed in terms of money as well as two flats. The department contended that this transaction was covered under Entry 5B inserted in Notification No. 13/2017-Central Tax (Rate) namely "Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project by a promotor". The notification entry pertains to GST applicable on reverse charge basis on promoter in such cases.

 

Examining clause 11.2.1 of the Unified Development Control and Promotion Regulations for the State of Maharashtra, which defines transferable development rights, to mean compensation in the form of Floor Space Index (FSI) or development rights, which shall entitle the owner for construction of built up area subject to the provisions in the said regulations, the High Court held that it would not cover rights which a developer derives from the owner under the agreement of development for constructing the building for the owners, in lieu of the owner agreeing to permit the developer to transfer certain built up units for consideration to be appropriated by the developer. It was contended that in the execution of the agreement dated 07.4.2022 no TDR or FSI has been purchased by the owner or for that matter by the petitioner. The Court set aside both the SCN and the impugned order as not covered under the RCM entry in the said notification. The order is not clear as to facts though it has been held that GST is not applicable in this case [2025-VIL-363-BOM]

 

Recovery of export benefits - CESTAT reiterates Customs Officers are not empowered to redetermine FOB value

A routine case of rejection of FOB value on the ground of over-valuation of export goods for claiming MEIS and IGST refund was decided by the CESTAT recently. However, the Bench discussed the meaning of FOB value and powers of customs officers to re-determine FOB value under the Customs law. It held that FOB is one of the INCOTERMS wherein the seller is responsible until the goods are put on board the vessel or aircraft and all costs and risks upto loading are on seller's account and he is free after such loading. It noted that Section 14 of Customs Act pertains to determination of export value and in respect of export goods in the case before it, since no export duty was payable, re-determination of value under Rule 6 after rejection under Rule 8 of Customs Valuation (Determination of Value of Export Goods) Rules were irrelevant. FOB value is the transaction value which is the price paid or payable by the buyer to the exporter and no stranger to the contract including customs officers have right to re-determine transaction value. This empowers the officer to determine value through some other method not provided in the rules.

 

The Tribunal set aside confiscation on the ground that at the time of filing shipping bill, the exporter cannot have knowledge as to whether transaction value will be accepted or rejected and what would be the correct value. A similar order was analysed in Tax Vista dated 17 March, 2025 [JBN Apparels - 2025-VIL-361-CESTAT-DEL-CU]. A question was raised as to how undue export benefit can be recovered if customs authorities cannot question the basis for the claim i.e., the FOB value. A further appeal or an amendment may provide an answer [2025-VIL-542-CESTAT-DEL-CU]

 

Previous edition, dated 14th April, 2025

 

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal. The author has published books on cross-border taxation and investigations & appeals under GST. E-mail - advgokulsubha@gmail.com)