CESTAT Quashes ₹347.87 Crore Service Tax Demand on Mining Royalty Paid to Rajasthan Government

January 24, 2026 : The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal has set aside a service tax demand of ₹347.87 crore raised against the Department of Mines and Geology, Rajasthan, holding that royalty and dead rent collected for grant of mining rights do not amount to taxable services under the category of renting of immovable property.

The Bench, comprising Binu Tamta (Member Judicial) and Hemambika R. Priya (Member Technical), allowed the appeal filed by the Mining Engineer, Department of Mines and Geology, Rajasthan, and quashed the Order-in-Original dated 3 July 2019 passed by the Commissioner of CGST, Alwar, which had confirmed the demand along with interest and penalty 1769368403_mining-engineer-1123….

The dispute arose from a show cause notice issued on 23 October 2018, wherein the tax department alleged that royalty and dead rent collected by the State Government for mining leases were essentially payments for allowing use of vacant land and were therefore liable to service tax under the head renting of immovable property. Accepting this reasoning, the adjudicating authority had confirmed a service tax demand of ₹3,47,87,620 along with interest and penalty.

Before the Tribunal, the appellant argued that mining leases are granted strictly under statutory frameworks such as the Mines and Minerals (Development and Regulation) Act, 1957 and the Rajasthan Minor Mineral Concession Rules, 1986. It was submitted that royalty and dead rent are statutory levies fixed by law, leaving no discretion either to the State or the lessee, and cannot be equated with commercial consideration for renting land. The appellant also pointed out that the issue was already settled in its favour by earlier decisions of the Tribunal.

The Tribunal agreed, observing that the grant of mining rights is an exercise of the State’s sovereign authority and not a commercial activity. It noted that neither the terms of the lease nor the quantum of royalty and dead rent are negotiable, as all aspects flow directly from statute. Such activities, the Bench held, cannot be treated as support services provided to business entities under the Finance Act, 1994.

While analysing the definition of support services, the Tribunal clarified that renting of immovable property becomes taxable only when it constitutes a service that business entities could otherwise carry out themselves in the ordinary course of operations. Activities that can be performed only by the Government in exercise of its sovereign powers fall outside this scope. Grant of mining rights, being exclusively within the State’s domain, does not qualify as a taxable service.

The Bench also relied on clarifications issued by the Central Board of Excise and Customs, which expressly state that grant of mining rights by the Government does not fall within the ambit of taxable support services. It further highlighted the inconsistency in the Revenue’s approach, noting that while renting of immovable property has traditionally been taxed under the forward charge mechanism, the department attempted to shift liability to service recipients under reverse charge after 1 April 2016 without any substantive change in the nature of the activity.

Relying on its earlier rulings in the appellant’s own case and a co-ordinate Bench decision in Director v. Commissioner, Jodhpur, the Tribunal reiterated that royalty and dead rent are statutory imposts and not consideration for any taxable service. Holding the demand to be unsustainable, the Tribunal set aside the impugned order in its entirety and allowed the appeal, granting significant relief to the Rajasthan Government department.

CESTAT Final Order No. 50145/2026 in Service Tax Appeal No. 51807 of 2021