Mining, steel companies may move court over GST on royalty, license fees

29-Sep-2021 The Economic Times Goods And Services Tax, GST, GST Council Meeting, GST Council, Input Tax Credit, ITC 693 Views

Several steel manufacturers and coal mining companies have reached out to their legal experts to explore options to challenge the recent government diktat to tax mining royalty and license fees under the Goods and Services Tax (GST) framework.

Following the recent GST Council meeting, the government has clarified that any royalty or license fees paid to the state should attract 18% GST.

"The services by the way of grant of mineral exploration and mining rights attracted a GST rate of 18% with effect from July 1, 2017," the government clarification said.

As per the current regulations, mining companies pay license fees to state governments and pay either royalty annually or based on conditions set and agreed beforehand. The question was whether GST is applicable on a service that the government is providing.

Such services were exempted from indirect taxes under the erstwhile tax regime, say industry trackers.

Tax experts are questioning whether using rights or any legal authority or license provided by the government to a company is taxable. Legal experts say this is set to result in a legal battle.

"The clarification will have to cross the test of constitutional validity because something which is not taxable under the statute cannot be clarified to be taxable. The statutory levies paid to the government should not be subject to tax in absence of 'quid pro quo'", said Abhishek A Rastogi, partner at law firm Khaitan & Co. Companies that have operations in Goa, Odisha, Rajasthan and Jharkhand are set to get majorly impacted from this clarification.

Some of the companies are looking to challenge the government's stand in court, claiming that this is a retrospective clarification. No company has yet filed any case in this regard but that could happen in the coming weeks. The government has said that GST should be applicable from July 1, 2017. This would mean that the companies will have to cough up GST for the last four years.

Many coal and steel companies will now have to pay taxes from 2017, which will disrupt their cashflows and profitability, say industry trackers.

While mining companies have to pay GST, some of the steel companies too will have to cough it up.

Insiders say as per GST framework, input tax credit should be available on such cost. However, the question will be whether it will be available on the GST paid since 2017.

Input Tax Credit is basically GST paid on raw materials or procurements that can be set off against future tax liability of a certain kind.

The government's ruling could also impact another ongoing controversy around casinos in Goa.

The intelligence arm of the indirect tax department had initiated investigations and slapped notices on 10 of the biggest casinos in Goa for non-payment of sales tax, ET had first reported in 2018.

The tax department wants casinos to pay sales tax on the license fees. The tax notices demanded that around 15% tax is applicable on the license fees. As per the tax department's rationale, services provided by the casinos can be categorised as goods as they "reserve the right to enter" for customers.

Legal experts say by the same logic, GST too should be applicable on the license fees paid by the casinos.

Source: The Economic Times

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