New Delhi, 11.12.2025 : The New Delhi Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has remanded a service tax demand raised on royalty paid to the State Government for grant of mining rights, holding that where the mining lease was executed prior to April 1, 2016, the levy must be examined under the negative list regime of the Finance Act, 1994.
The Bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) was hearing an appeal filed by M/s R.D. Clay Mines Private Limited against an order of the Commissioner (Appeals) confirming service tax, interest, and penalty on royalty paid for mining rights under the reverse charge mechanism.
The Department had argued that royalty paid to the Government for grant of mining rights constituted a taxable service and was liable to service tax. This view was accepted by the adjudicating authority and later upheld by the Commissioner (Appeals).
Challenging the demand, the assessee submitted that its mining lease agreements were executed prior to April 1, 2016. It argued that, during the relevant period, services provided by the Government were largely covered under the negative list in Section 66D of the Finance Act, 1994, and therefore not taxable. The assessee relied on earlier Tribunal rulings holding that service tax could not be levied on royalty for mining rights for the period prior to April 1, 2016.
The Tribunal noted that the mining lease agreements, which were crucial to deciding the issue, had not been produced either before the adjudicating authority or the Commissioner (Appeals). In the absence of these documents, the Bench held that it could not conclusively determine whether the leases were executed before April 1, 2016 and whether the benefit of the negative list was available.
Referring to earlier decisions such as Principal Commissioner, CGST & Central Excise, Bhopal v. S.R. Traders and Madhya Pradesh State Mining Corporation Ltd., the Tribunal reiterated that services provided by the Government for grant of mining rights were not taxable prior to April 1, 2016 and were brought into the tax net only after the amendment to Section 66D took effect from that date.
The Bench observed that the taxable event for service tax is the point when the service is provided or agreed to be provided. If the mining lease was executed before April 1, 2016, the law as it stood prior to that date would apply, under which such services were not exigible to service tax.
Accordingly, the Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for fresh consideration. The authority was directed to examine the mining lease agreements and decide the issue afresh in line with the settled legal position. The appeal was allowed by way of remand.
Case Title: M/s R.D. Clay Mines Pvt. Ltd. v. Commissioner (Appeals), CGST & Central Excise, Jodhpur
Case No.: Service Tax Appeal No. 55087 of 2023
