Rajasthan High Court - Jodhpur
Udaipur Chambers Of Comme. & Indu. &Ors; vs Union Of India & Anr on 24 October, 2017
Author: Govind Mathur
Bench: Govind Mathur, Vinit Kumar Mathur
HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR
D.B. Civil Writ Petition No. 14578 / 2016
1. Udaipur Chambers of Commerce and Industry, Having Its
Registered Office At Mewar Industrial Area, Madri, Udaipur,
Through Its Authorised Signatory Shri M.L. Lunawat
2. M/s. Mahaveer Trading Company, Having Its Registered Office
At E-263, Mewar Industrial Area, Madri, Udaipur
3. M/s. Aravali Minerals & Chemical Industries Pvt. Ltd., Having Its
Registered Office At E-132, Mewar Industrial Area, Madri, Udaipur
4. M/s. Soni Marbles, 31, Pawa Vihar, Ahinsapuri, Fatehpura,
Udaipur
5. M/s Achibavri Soapstone & Dolomiote Mine, Through Its Owner
Shri Mahesh Mantri S/o Shri Sukhlal Mantri, Aged About 63 Years,
R/o 1, Panchwati, Udaipur
6. M/s. Paras Mineral Industries, Having Its Registered Office At
New Colony, Doongarpur, Rajasthan
7. M/s. Rajasthan Barytes Ltd., Having Its Registered Office At RBL
House, Punjawati, Gaurav Path, Near R.K. Circle, Udaipur
8. M/s Ashoka Minerals, 20, Industrial Estate, Pratap Nagar,
Udaipur
9. M/s. Nalwaya Minerals Industries Pvt. Ltd., Having Its
Registered Office At 7A, Bapu Bazar, Udaipur
10. M/s. Associated Soapstone Dist. Co. Pvt. Ltd., Having Its
Registered Office At Golcha Gardens, Agra Road, Jaipur and Unit
At 24, Akashwani Marg, Udaipur
11. M/s. Khetan Business Corporation Pvt. Ltd., Having Its
Registered Office At 11, Laxmi Bhawan, 58 D Road, Church Gate,
Bombay and Unit At 23 A/1, Residency Road, Udaipur
12. M/s. Harish Clays, Having Its Registered Office At Golcha
Gardens, Agra Road, Jaipur and Unit At D-185, Karni Nagar,
Bikaner
13. M/s Aravali Polyart Pvt Ltd., Having Its Registered Office At
Village Piparch, Tehsil-girwa Udaipur
14. M/s. Udaipur Mineral Development Syndicate Pvt. Ltd., Having
Its Registered Office At 4th Floor, Golcha Trade Centre, Near
Ajmeri Gate, M.I. Road, Jaipur and Unit At Opposite Railway
Station, Chittorgarh Road, Bhilwara
(2 of 23)
[CW-14578/2016]
15. M/s Krishna Miners and Traders, Having Its Registered Office-
3-B Industrial Estate, Pratap Nagar, Udaipur
16. Kedar Nath Khetan, S/o Prahlad Rai, R/o Behind Jain Temple
Kherwada, District-udaipur
17. M/s Tarun Minerals, Having Its Registered Office At Behind Jain
Temple, Kherwada, District Udaipur
18. M/s Abdeali S. Kumarwala, Having Its Registered Office At
Girwa, District-udaipur, Through Its Proprietor Shri Abdeali
S.kumarwala
19. M/s Apec Mineral Industry, Having Its Registered Office At RBL
House, Punjawati, Gaurav Path, Near R.K. Circle, Udaipur
----Petitioners
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi
2. The Superintendent, Central Excise Range-II, Sector 11, Hiran
Magri, Udaipur
----Respondents
Connected With
D.B. Civil Writ Petition No. 2706 / 2017
Tamanna Begum W/o Late Mohammad Sher Khan, R/o Khwaja
Bagh, SAWA-312613 Tehsil and District Chittorgarh Through Her
Power of Attoney Holder K.Alam S/o Shri Abdul Hafiz Khan Aged
63 Years Resident of Kumbha Nagar, Chittorgarh.
----Petitioner
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shashtri Bhawan,
New Delhi
2. The Superintendent, Central Excise, Range-I, 33, Shastri Nagar,
Chittorgarh
----Respondents
D.B. Civil Writ Petition No. 2707 / 2017
M/S M.J. Minerals, a Proprietorship Firm, Khwaja Bagh, SAWA-
312613 Tehsil and District Chittorgarh Through Its Power of
(3 of 23)
[CW-14578/2016]
Attorney Holder K. Alam S/o Shri Abdul Hafiz Khan Aged 63 Years
Resident of Kumbha Nagar, Chittorgarh.
----Petitioner
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi
2. The Superintendent, Central Excise, Range-I, 33, Shastri Nagar,
Chittorgarh.
----Respondents
D.B. Civil Writ Petition No. 2708 / 2017
Juned Khan of Late Mohammad Sher Khan, R/o Khwaja Bagh,
SAWA-312613 Tehsil and District Chittorgarh Through His Power of
Attorney Holder K.Alam S/o Shri Abdul Hafiz Khan Aged 63 Years
Resident of Kumbha Nagar, Chittorgarh.
----Petitioner
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi
2. The Superintendent, Central Excise, Range-I,33, Shastri Nagar,
Chittorgarh.
----Respondents
D.B. Civil Writ Petition No. 2715 / 2017
Progressive and Popular Minerals Pvt. Ltd, Registered Office At
Khwaja Bagh,SAWA-312613 Tehsil and District Chittorgarh
Through Its Power of Attorney Holder K.Alam S/o Shri Abdul
Hafeez Khan, Aged About 63 Years, Resident of C54, Kumbha
Nagar, Chittorgarh.
----Petitioner
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi.
2. The Superintendent, Central Excise Range-I,33, Shastri Nagar,
Chittorgarh.
(4 of 23)
[CW-14578/2016]
----Respondents
D.B. Civil Writ Petition No. 2717 / 2017
Rehmat Ali S/o Shri Hasmat Ali, R/o Khwaza Bagh, Sawa Tehsil
and District Chittorgarh Through Power of Attorney K.alam S/o
Shri Abdul Hafeez Khan Aged 63 Years Resident of Kumbha Nagar,
Chittorgarh.
----Petitioner
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi
2. The Superintendent, Central Excise, Range-I,33, Shastri Nagar,
Chittorgarh.
----Respondents
D.B. Civil Writ Petition No. 2718 / 2017
Mohammad Ayyub Khan Son of Shri Gulbaz Khan, R/o Khwaja
Bagh, SAWA-312613 Tehsil and District Chittorgarh Through Her
Power of Attorney Holder K.Alam S/o Shri Abdul Hafiz Khan Aged
63 Years Resident of Kumbha Nagar, Chittorgarh.
----Petitioner
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi.
2. The Superintendent, Central Excise Range-I,33, Shastri Nagar,
Chittorgarh.
----Respondents
D.B. Civil Writ Petition No. 2878 / 2017
Syed Sajid S/o Shri Mushtaq Ali, Aged About 45 Years, Resident of
Kanoj Road, District - Chittorgarh.
----Petitioner
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi
(5 of 23)
[CW-14578/2016]
2. The Superintendent, Central Excise, Range-I,33, Shastri Nagar,
Chittorgarh.
----Respondents
D.B. Civil Writ Petition No. 2879 / 2017
Mohammad Sabir Khan S/o Shri Gulbaz Khan, Aged About 50
Years, R/o Kannoj Road, Sawa Tehsil and District Chittorgarh.
----Petitioner
Versus
1. The Union of India Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi
2. The Superintendent, Central Excise, Range-I,33, Shastri Nagar,
Chittorgarh.
----Respondents
D.B. Civil Writ Petition No. 2880 / 2017
Mohammad Saeed Khan S/o Habibullah Khan, Aged About 65
Years, Resident of Nimbahera District Chittorgarh.
----Petitioner
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi
2. The Superintendent, Central Excise, Range-I,33, Shastri Nagar,
Chittorgarh.
----Respondents
D.B. Civil Writ Petition No. 3032 / 2017
Mohammad Saeed Khan of Late Mohammad Sher Khan, R/o
Khwaja Bagh, SAWA-312613 Tehsil and District Chittorgarh
Through Her Power of Attorney Holder K.Alam S/o Shri Abdul Hafiz
Khan Aged 63 Years Resident of Kumbha Nagar, Chittorgarh.
----Petitioner
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
(6 of 23)
[CW-14578/2016]
New Delhi.
2. The Superintendent, Central Excise Range-I,33, Shastri Nagar,
Chittorgarh.
----Respondents
D.B. Civil Writ Petition No. 3033 / 2017
M/s Perwa Minerals, a Registered Partnership Firm Through Its
Power of Attorney Holder k Alam S/o Shri Abdul Hafeez Khan,
Aged About 63 Years, R/o Kumbha Nagar, Chittorgarh.
----Petitioner
Versus
1. The Union of India Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi.
2. The Superintendent, Central Excise, Sirohi
----Respondents
D.B. Civil Writ Petition No. 3034 / 2017
Sherwa Minerals Private Limited, Through Its Power of Attorney
Holder K.Alam S/o Shri Abdul Hafeez Khan, Aged About 63 Years,
Resident of Kumbha Nagar, Chittorgarh.
----Petitioner
Versus
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi.
2. The Superintendent, Central Excise, Sirohi.
----Respondents
D.B. Civil Writ Petition No. 4162 / 2017
M/s M W Mines Private Limited, Aged About 50 Years, Village-
Madhpura, Khimsar, District- Nagaur (Rajasthan) Through Its
Managing Director Dr. R.S. Grewal, S/o Shri Hardyal Singh, R/o
Village & Post Maadpura, Tehsil- Khimsar, District- Nagaur
(Rajasthan)
----Petitioner
Versus
(7 of 23)
[CW-14578/2016]
1. The Union of India, Through the Secretary, Ministry of Finance,
Department of Revenue, Government of India, Shastri Bhawan,
New Delhi
2. The Assistant Commissioner, Central Excise Department,
Commissionrate, 117/5, P.W.D. Colony, Near Riktiya Bheruji
Mandir, Jodhpur.
----Respondents
_____________________________________________________
For Petitioner(s) : Mr. M.S.Singhvi, Senior Advocate, assisted
by Mr. Varun Singhvi
Mr. Vivek Aggarwal
Mr. D.D.Thanvi
Mr. B.M.Bohra
Mr. Amit Vyas
Mr. Arvind Shrimali
For Respondent(s) : Mr. Vipul Singhvi, Senior Standing Counsel
_____________________________________________________
HON'BLE MR. JUSTICE GOVIND MATHUR
HON'BLE MR. JUSTICE VINIT KUMAR MATHUR Order Per Hon'ble Govind Mathur,J.
24/10/2017 In this batch of petitions for writ the issue under consideration before us is relating to applicability of service tax on yearly installments due after April 1, 2016 in respect of assignment of right to use any natural resource, more specifically a mining lease granted by Government in the context to notification No.25/2012-ST dated 20.6.2012 read with notification NO.22/2016 dated 13.4.2016, issued by the Government of India.
The facto legal background necessary to be noticed to examine the issue under consideration is that the parliament by (8 of 23) [CW-14578/2016] way of the Finance Act, 1994 (hereinafter referred to as "the Act of 1994") imposed service tax on the services defined and described under Section 65-B(44). The definition since then subjected to amendments time to time and w.e.f. 1.7.2012 system of negative list of service tax was introduced in it. The existing definition of "service" as given under Section 65-B(44) of the Act of 1994 is as follows:-
"65B(44) "service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include--
(a) an activity which constitutes merely.--
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or in relation to his employment;
(c) fees taken in any Court or tribunal established under any law for the time being in force.
Explanation 1. - For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to.--
(A) the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of (9 of 23) [CW-14578/2016] other local authorities who received any consideration in performing the functions of that office as such member; or (B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or (C) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section.
Explanation 2.-- For the purposes of this Chapter,--
(a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;
(b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct person.
Explanation 3.-- A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory;
Explanation 4.-- A person carrying on a business through a branch or agency or representational office in (10 of 23) [CW-14578/2016] any territory shall be treated as having an establishment in that territory;
Sub clause (i) of sub clause (a) of the aforesaid sub- section clearly exempts the transfer of goods or immovable property from charge of service tax." The Act of 1994 also interprets the term "declared services" under Section 66-E and that is as follows:-
"Declared services.-- The following shall constitute declared services, namely:-
renting of immovable property construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion- certificate by the competent authority.
Explanation.-- For the purpose of this clause.--
(I) the expression "competent authority" means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:-
architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972); or (11 of 23) [CW-14578/2016] chartered engineer registered with the Institution of Engineers (India); or licenced surveyor of the respective local body of the city or town or village or development or planning authority;
(II) the expression "construction" includes additions, alterations, replacements or remodeling of any existing civil structure; temporary transfer of permitting the use or enjoyment of any intellectual property right;
development, design, programming, customization, adaption, upgradation, enhancement, implementation of information technology software; agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods; activities in relation to delivery of goods on hire purchase or any system of payment by installments; service portion in the execution of a works contract; service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity; assignment by the Government of the right to use the radio- frequency spectrum and subsequent transfers thereof."
It is also relevant to mention that Section 65 of the Act of 1995 clarifies the transfer of immovable properties and i.e. as under:-
(12 of 23) [CW-14578/2016] "[90a] "renting of immovable property" includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course of furtherance of business or commerce but does not include -
(i) renting of immovable property by a religious body or to a religious body; or a. renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre.
Explanation 3[1].-- For the purposes of this clause, "for use in the course or furtherance of business or commerce" includes use of immovable property as factories, office buildings, warehouses, theaters, exhibition halls and multiple-use buildings;] [Explanation 2.-- For the removal of doubts, it is hereby declared that for the purposes of this clause "renting of immovable property" includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property;]"
With the enactment of the Act of 1994 the Central Government derived its authority from the residuary Entry 97 of List-1 (Union List) for levying tax on services. To have legal backup to introduce such tax, the parliament by way of constitutional amendment (constitution) (eighty eighth amendment) Act, 2003 introduced Article 268-A, according to (13 of 23) [CW-14578/2016] that, taxes on services shall be levied by the Government of India and such tax shall be collected and appropriated by the Government in the manner provided in clause (2) of Article 268-A. By the same amendment Act Entry 92-C was also introduced in List-1 - Union List (seventh schedule) appended with the Constitution of India.
Important to note here that "service tax" as applied under the Act of 1994 is a value added tax which applies to all commercial activities involving production of goods and provision of services.
Invoking powers under sub-section(1) of Section 93 of the Act of 1994 and in super-session of notification No.12/2012- ST dated 17.3.2012, the Government of India issued and published a notification No.25/2012-ST dated 20.6.2012 exempting certain taxable services from service tax. By an other notification No.22/2016-ST dated 13.4.2016, the Government of India on being satisfied that it would be necessary in public interest to further amend the notification dated 20.6.2012, brought certain amendments, relevant from that, is as follows:-
"61. Services provided by Government or a local authority by way of assignment of right to use any natural resource where such right to use was assigned by the Government or the local authority before the 1 st April, 2016:
(14 of 23) [CW-14578/2016] Provided that the exemption shall apply only to service tax payable on one time charge payable, in full upfront or in installments, for assignment of right to use such natural resource;"
The Government of India, Ministry of Finance, on the same day, issued a clarification regarding levy of service tax on services provided by Government or a local authority to business entities. As per the Entry-9 of the circular aforesaid, service tax is payable on such installments in Rule 7 of the Taxation Rules, 2011 as amended vide notification No.24/2016-ST dated 13.4.2016. The exemption given vide notification No.25/2012 dated 20.6.2012 as amended on 13.4.2016 pertains to service tax payable on one time charge, payable in full upfront or in installments, for assignment of right to use any natural resource and not to periodic payment required to be made by the assignee, such as spectrum user charges, licence fee in respect of spectrum, or monthly payments with respect to coal extracted from the coal mine or royalty payable on extracted coal.
The clarification given under the notification aforesaid, the royalty i.e. to be paid by mining lease holder as per provisions of the Mines and Minerals (Development and Regulations) Act, 1957 (hereinafter referred to as "the Act of 1957") is subject to payment of service tax and legality of the same is questioned in these petitions.
(15 of 23) [CW-14578/2016] The fundamental argument advanced on behalf of the petitioners is that the impugned notification dated 13.4.2016 and its clarification is ultra-vires to provisions of the enabling Act i.e. the Finance Act 1994 as amended time to time. It is asserted that the liability to pay service tax arises, if such activity is a "service" as defined under Section 65-B(44) or a "declared service" within the meaning of Section 66-E of the Act of 1994 and not otherwise. The grant of mining lease is neither a service nor a declared service being an authorisation by the State Government to excavate the mineral or consume or sale the same. Such activity is an assignment of a right but such assignment is not prescribed under Section 66-E of the Act of 1994, which pertains to right to use the radio frequency spectrum and subsequent transfers thereof. According to learned counsel appearing on behalf of the petitioners the grant of mining lease could have not been brought within the definition of service or declared service by executive fiat without making necessary amendments in the definition of "service" or "declared service" under the Act of 1994.
On behalf of the petitioners, it is also submitted that while executing mining lease no service is rendered either by the State Government or the mining lease holder, as such, no question arises to levy service tax. The term, as per learned counsel for the petitioners, "service" expressly excludes an activity that may result in transfer or title for goods or immovable property by way (16 of 23) [CW-14578/2016] of gift or any other manner. Grant of mining lease is transfer of the right by the State Government to lease holder to excavate the mineral by way of assignment that falls within the expression "any other manner". The mining lease holder, as per the petitioners, is not carrying out any activity for the State Government but i.e. a transfer of assignment of rights of the State Government to excavate the mineral subject to payment of royalty.
It is also urged that levy of service tax on payment of royalty is bad as grant of mining lease and its execution by the Central Government or the State Government, as the case may be, is a statutory act and not a service. The payment of royalty by a lessee is also a statutory obligation and i.e. to be paid in proportion to the mineral excavated for sale, use or consumption. In either case the royalty does not come into ambit of "service" as defined under Section 65-B(44) or "declared service" as defined under Section 66-E of the Act of 1994.
While meeting with the arguments advanced on behalf of the petitioners, it is submitted on behalf of the respondents that all services provided by the Government, Governmental authority or local authority to business entities subject to the specific exemptions, if provided, is leviable to service tax w.e.f. 1.4.2016. In the case in hand, the State Government, while granting mining lease, enables a lessee to excavate minerals subject to payment of royalty/licence fee and as such i.e. nothing but "service" provided (17 of 23) [CW-14578/2016] by the Government to the lessee. It is asserted that the exemption is only for transfer of title in immovable property, by way of sale, gift or any other manner and not to transfer by way of executing a lease assigning rights to exploit mineral for time being. Such an activity, as per the respondents, falls within the definition of "service" under the Act of 1994. Shri Vipul Singhvi, learned counsel appearing on behalf of the Central Government, emphasised that even under the preamble of the Act it is set out that the Mines and Minerals (Development and Regulations) Act, 1957 is an Act to provide for development and regulation of mines and minerals under the control of the Union and Section 9 of that provides that the holder of mining lease shall pay royalty in respect of any mineral removed or consumed by him for the leased area at the rate specified in schedule to the said Act. This provision indicates that the payment of royalty is necessary for continuing to hold mining lease and, therefore, the Government subject to payment of royalty grants mining lease assigning lessee a right to explore and exploit minerals in an area and such assignment of immovable property is a service.
A rejoinder to the reply is given by the petitioners, mainly reiterating whatever already stated in the petition for writ.
Heard learned counsels.
(18 of 23) [CW-14578/2016] The effect of the amendment introduced under the notification dated 13.4.2016 and its clarification is far reaching as that provides that any service which is not specifically excluded, provided by the Government/local authority, shall liable to service tax irrespective of the fact whether payments have been made to the Government on performing its statutory functions/duties or otherwise. In mining sector, the effect of amendment is apparent as that involves grant of rights to use natural resource by the Government subject to payment of royalty. Under the notification impugned, while the one time charge for grant/assignment of right to use natural resource issued prior to April 1, 2016 has been kept out of the levy of service tax, but i.e. payable on periodic payments made to the Government/local authority, as such, the payment of royalty by the petitioners, who are having lease to excavate mineral is subject to payment of service tax.
The submission of the petitioners is that the royalty prescribed under Section 9 of the Act of 1957 is not a "consideration", hence, execution of mining lease by the Government in favour of a mine holder cannot be treated as "service" under Section 65-B(44) of the Act of 1994. The same is also not a "declared service" in view of the fact that the provision relates to assignment by the Government for the right to use the radiofrequency spectrum and subsequent transfers thereof. No clause of Section 66-E pertains to assignment of natural resources. It is asserted that the impugned notification dated (19 of 23) [CW-14578/2016] 13.4.2016, in light of whatever stated above, is in conflict with the enabling Act, thus, deserves to be declared bad.
We have scaled merits of the argument advanced by taking into consideration all relevant provisions.
As per Section 9 of the Act of 1957, the holder of a mining lease notwithstanding anything contained in the instrument of lease or in any law in force is supposed to pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area at the rate the time being specified in the second schedule in respect of that material. In light of the provision aforesaid, the mining operations by a mining lease holder are absolutely dependent to payment of royalty and no mining activity by any mining holder shall be valid without payment of royalty. Any mining operation not followed by payment of royalty is subject to penalty also under the Act of 1957 and the Rules framed thereunder.
Precisely, we are required to examine that the royalty under the Act of 1957 is a "consideration" or not and further if that is "consideration", then what would be the effect pertaining to payment of service tax?
(20 of 23) [CW-14578/2016] Under the Act of 1957, no mining lease would be granted without adhering the procedure given under Sections 10 to 12. The prospecting licence and mining leases are further regulated by the Rules framed under Sections 13 and 13-A of the Act of 1957. As per the Mineral Concession Rules, 1960 (hereinafter referred to as "the Rules of 1960"), prospecting licence in respect of land in which minerals vest in the Government, can be granted by adhering the procedure given in Chapter-III and further mining lease can be granted only after adhering the procedure prescribed under Chapter-IV of the Rules of 1960. At the threshold, applications for granting mining lease are required to be entertained by the State Government in the prescribed format and further after adhering a definite procedure, mining lease is required to be granted and executed between the parties. The mining lease executed is nothing but a contract to undertake mining operations in the leased mining area.
As already stated, the mining operations, as per the conditions of mining lease deed, are subject to payment of royalty. According to Section 2(d) of the Indian Contract Act, 1872, when at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence or promise is called a consideration for the promise. In general, "consideration" is the price for a promise and is an essential ingredient for a contract. It is a value received as (21 of 23) [CW-14578/2016] incentive for the promise and a contract without that is not binding on the parties. It is a vital element and benefit i.e. to be settled between the parties and also an essential reason for a party entering into contract for exchange of any thing of value by each party.
Taking into consideration all these principles relating to "consideration", we are of considered opinion that the royalty is nothing but a "consideration" to have mining operations in the leased area on execution of a mining lease. It is a part of agreement arrived between the parties to have lease of a mining area to undertaking mining operations. The royalty being "consideration" certainly places assignment of right to use natural resources deposited in the leased area as a "service" as defined under Section 65-B(44) of the Act of 1994, according to which, any activity carried out by a person for another for consideration is a service. The finding arrived by us as above is sufficient to say that the notification dated 13.4.2016 is not at all in conflict with its enabling Act i.e. the Finance Act, 1994 and the same does not suffer from any illegality.
On arriving at the conclusion that the activity in question is a service, there is no need to examine the other argument advanced by counsel for the petitioners to challenge the notification aforesaid on the ground that the assignment of right (22 of 23) [CW-14578/2016] to use natural resource i.e. the mineral deposited in the leased area is also not a "declared service".
An effort is also made to bring assignment under consideration in exclusion category with submission that by awarding lease the State transfers its title in goods in other manner than the sale or gift, as such, no service tax could have been claimed. This argument too, in our opinion, is bereft of merit as the term "goods" is defined under Section 65(50), assigning the same meaning as given under clause(7) of Section 2 of the Sale of Goods Act, 1930, according to that, it is every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale. The assignment of right to use any natural resource i.e. mineral cannot be treated as a goods for the purpose of the Act of 1994.
There is no transfer of immovable property too as the lease granted is only to excavate mineral from the leased area and that activity at the most can be physical `transfer of property by its "renting" as prescribed under Section 65(90a) of the Act of 1994, but not the transfer of title in immovable property. Section 65(90a) pertains to transfer of immovable property by renting and that includes leasing of immovable property for use in furtherance of business and commerce. The absence of the word "title" in this (23 of 23) [CW-14578/2016] provision is quite important and that indicates the entire activity as transfer of possession of the immovable property for its use or consumption by way of renting, letting, leasing, licencing or by other similar arrangements, as the case may be. The exclusion under Section 65-B(44) is for transfer of title in immovable property, which is conspicuously absent in the grant of lease for mining operations. The tile of the mining area admittedly retains with the State even on execution of mining lease to excavate mineral from the leased area.
For the reasons given above, the petitions for writ are bereft of merit, hence, dismissed.
(VINIT KUMAR MATHUR) J. (GOVIND MATHUR) J.
MathuriaKK/PS