GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

सहायक आय ु त कायालय, क य व त ु व सेवा कर

OFFICE OF THE ASSISTANT COMMISSIONER,
CENTRAL GOODS & SERVICE TAX
मंडल-I, हालोल, वड़ोदरा-II आय ु तालय
DIVISION-I, HALOL, VADODARA - II COMMISSIONERATE
स ल जीएसट भवन, लाट नं ६२४, जीआईडीसी हालोल,
िजला पंचमहल, वडोदरा - 389350
CENTRAL GST BUILDING, PLOT NO 624, GIDC HALOL,
DISTRICT PANCHMAHAL – 389350
(Email: [email protected]
फ़ा.सं या:GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II दनांक:
10.12.2024
DIN- 20241265VB000000F732
वारा आदे श पा रत / Order passed by
ब पनकुमार व. बा रया / Bipinkumar.V. Baria,
सहायक आयु त / Assistant Commissioner,
व तु एवं सेवा कर और के य उ पाद शु क, मंडल – I, वडोदरा - II आयु तालय
CGST & Central Excise, Division-I, Vadodara-II Commissionerate

मूल आदेश सं या/ Order in Original No.

(DIV-I/DEMAND/BVB/06/Budhabhai/2024-25)

जारी करने क तारीख / Date of Order : 10.12.2024

िनगत करने क तारीख / Date of issue : 10.12.2024

1. िजस यि )य (को यह पित भेजी जाती है , उसके /उनके िनजी पयोग के िलए िनःशु क पदान क जाती है।
This copy is granted free of charge for private use of the person(s) to whom it
is sent.

2. कोई भी यि जो खदु को इस आदेश से पीिड़त मानता है, वह इस आदेश के िखलाफ आयु (अपील), कदीय जीएसटी और कदीय उ पाद
शु क, कदीय जीएसटी भवन, रे स कोस सकल, वडोदरा, गजु रात -390007 को अपील कर सकता है। अपील सीजीएसटी अिधिनयम , 2017 क धारा
107 के पावधान के अनसु ार उस तारीख से तीन महीने के भीतर क जानी है, िजस िदन उ िनणय या आदेश ऐसे यि को सिू चत िकया जाता है।
Any person deeming himself aggrieved by this order may appeal against this
order to Commissioner (Appeals), Central GST & Central Excise, Central GST
Bhavan, Race Course Circle, Vadodara, Gujarat-390007. The appeal is to be
made as per the provisions of Section 107 of CGST Act, 2017, within three
months from the date on which the said decision or order is communicated to
such person.

3. अपील के साथ िन निलिखत द तावेज़ संल न होने चािहए।

The following documents must be enclosed along with the appeal.
.
(i) अपील क पित।
GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

Copy of the Appeal.

(ii) आदेश क यह पित या आदेश क दसू री पित, िजस पर उिचत मू य का यायालय शु क िटकट लगा होना चािहए।
This copy of order or another copy of the order, which must bear court fee stamp of
appropriate value

To,
M/s Budhabhai Balabhai Meghani,
(Legal Name: M/s Budhabhai Balabhai Meghani ),
GSTIN: 24ALWPM3310L3ZS,
499, VASEDI, VASEDI, Chhotaudepur, Gujarat, 391165
GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

BRIEF FACTS OF THE CASE

M/s Budhabhai Balabhai Meghani, having their Principal Place of

Business as well as Registered Office Survey No. 499, VASEDI, VASEDI,
Chhotaudepur, Gujarat, 391165 (herein after referred to as ‘the taxpayer’ for
the sake of brevity) are engaged in the business of exploration and production of
Various Minerals and for which they are holding GST Registration No.
24ALWPM3310L3ZS. They fall under the Jurisdiction of Range-V, Division-
I(Halol), CGST & Central Excise, Vadodara-II Commissionerate.
2. An Intelligence was gathered from Department of Geology & Mining,
Government of Gujarat, Gandhinagar, which indicated that Taxpayer (operator)
were granted license/permission for extraction and production of Minerals by
them in the licensed blocks for which they were paying Royalty to State Govt.,
for extraction and production of Minerals. It was further gathered that Taxpayer
were not paying Goods and Services Tax (GST) on Royalty from 01.07.2017
onwards. The payment of these charges to government for extraction of Minerals
is “taxable supply” namely, “licensing services for the right to use minerals
including its exploration and evaluation” falling under Service Code
997337 and are liable to GST as the service provided by Government to
business entities has been chargeable to GST under Reverse Charge
Mechanism. Therefore, the service recipient viz. Taxpayer are liable to discharge
GST, which they failed to do so.
3. The facts of the case were that the taxpayer was granted license/permission
for extraction and production of Minerals viz.Pebbles, Gravel, Broken or
Crushed Stone etc. in the licensed blocks and royalty paid to the Govt. is a part
of the consideration payable for the Licensing services for right to use minerals
including exploration and evaluation falling under the Head 9973 which is
taxable at 9% CGST and 9% SGST from 01.07.2017 onwards under the
residual entries of Serial No.17 of the Notification No.11/2017-Central Tax
dated 28.06.2017. Since the supply of services by the Government to a
business entity located in the taxable territory, are covered under Serial No.5
of Notification No.13/2017-Central Tax dated 28.06.2017, the liability to pay
tax is on the recipient of such services on Reverse Charge Mechanism as the
Licensing services for right to use minerals including exploration and
evaluation are provided by the State Government to a business entity.
4 . On the basis of details gathered from Department of Geology & Mining,
Government of Gujarat, Gandhinagar for the period July-2017 to Nov-2022,
their total GST liability on Royalty has been worked out and the same comes to
Rs. 3395204/-detailed as under;
GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

F. Y. Royalty paid M/s Budhabhai Balabhai Meghani GST Liability

2017-18 1174467.7 211404.19

2018-19 0 0
2019-20 5141096 925397.3
2020-21 5488327.1 987898.88
2021- Nov. 2022 7058354 1270503.7
Total 18862244.8 3395204.06
Further, the taxpayer suppressed the fact of receipt of taxable supply of
services during the period July’2017 to Nov-2022 with an intent to evade
payment of GST. Therefore, the taxpayer has contravened the provisions of
Section 74(1) of the CGST/GGST Act, 2017 read with the provisions of Section
20 of the IGST Act, 2017 for the unpaid GST amount recoverable along-with
interest as applicable under Section 50(1) of the said Act and the Rules made
thereunder. Further, for all these acts of omission and commission, Taxpayer is
also liable for penal action under Section 74(1) read with Section 122(2)(b) of
the said Act and the rules made thereunder for suppression of the facts
mentioned above.

Further, a Form GST DRC-01A regarding intimation of tax ascertained as

being payable under Section 74(5) of CGST Act, 2017 before issuing of Show
Cause Notice was issued to the taxpayer on 24.04.2024. However, the taxpayer
failed to submit the requisite reply on or before the scheduled date. Hence, in
the absence of reply, it was presumed that they have nothing to say in the
matter

5 . Thereafter, a Show Cause Notice No. GEXCOM/SCN/GST/3773/2024-

CGST-DIV-1-COMMRTE dated 27.06.2024 was issued to taxpayer, answerable
to the Assistant/ Deputy Commissioner, CGST and Central Excise, Division-I
(Halol), Vadodara-II Commissionerate, having office at Plot No. 624, GIDC Halol,
Distt- Panchmahals-389350 as to why: -

i. GST amounting to Rs. 33,95,204/- [CGST: Rs. 16,97,602/- + SGST: Rs.

16,97,602/-] (Rupees Thirty-Three Lakh Ninety Five Thousand Two Hundred
Four Only) for the period July-2017 to Nov 2022, should not be demanded and
recovered from them under Section 74(1) of the CGST Act, 2017 read with the
provisions of Section 20 of the IGST Act, 2017;
ii. Interest at applicable rate should not be demanded and recovered from them
under Section 50(1) of the CGST Act, 2017 on the demand for the amount
which is required to be recovered;
iii. Penalty should not be imposed on them under Section 74(1) read with Section
122 (2)(b) of the CGST/GGST Act, 2017 read with the provisions of the IGST
Act, 2017 for aforementioned contraventions.

DEFENCE REPLY

6. The taxpayer was required to file their reply within 30 days from the date
GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

of receipt of the show cause notice but they did not submit the same.

PERSONAL HEARING

7. The opportunity for personal hearing was given to the taxpayer via
Registered post as well as their registered e-mail also. Personal Hearing in the
matter was fixed on date 05.11.2024, 14.11.2024 and 22.11.2024 so that the
principal of natural justice could be met. However, the taxpayer failed to
appear for personal hearing.

DISCUSSION AND FINDINGS

8. I have carefully gone through the show cause notice, written submission
by the taxpayer, record of personal hearing and other documents available on
record. The issue to be decided is that the total outstanding GST liability of Rs.
33,95,204/- along-with applicable interest and penalty as demanded in the
instant show cause notice is correct or otherwise.

8.1 The brief facts are already mentioned in the foregoing paras and hence
are not repeated here. I now go through the history of the case, peruse the
relevant statutory provisions of the CGST Act, 2017 and the contravention
thereof by the tax payer in the following paras:

8.2 I observe that a copy of letter F. No IV/6-Prev/133/Royalty/Gr.VIII/23-

243 dated 24.01.2024 have been received from the Deputy Commissioner (Anti
Evasion), CGST & Central Excise, Vadodara-II along with its enclosure letter
regarding “Information regarding Royalty paid by the mine holders situated in
the jurisdiction of CGST Vadodara-II, for looking into short payment of GST on
RCM basis on amount of Royalty, DMF charges, Surface Rent, DMF charges,
Surface Rent, Dead Rent NMET Fund expenses paid in lieu of Taxable services
of “Service by way of grant of mineral exploration and mining rights” provided
by the Department of Geology & Mining, to the Taxpayer/Mine Holders during
the period from July-2017 to November-2022.

8.3 Further I observe that in the list of the said letter, name of the taxpayer,
is reflecting. From the said details/information, it shows that the taxpayer has
paid Royalty total amounting to Rs. 33,95,204/- during the period July-2017
to November-2022. I note that they have not paid the GST on Royalty charges
paid by them to the government for extraction of Minerals and therefore, the
same is required to be demanded and recovered from them as per provisions of
the CGST Act, 2017 and Rules made thereunder.

8.4 I observe that the taxpayer has not paid the GST on Royalty, therefore, in
order to arrive at the legality and sustainability of demand, the issue of
taxability of GST on Royalty/other charges, its classification thereof and
GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

applicable rate of GST is required to be examined in light of relevant provisions

of law. These aspects are discussed in the following paras.

Royalty and its taxability/chargeability:

9.1 In order to understand the issue of taxability of Royalty, first and

foremost, it is important to understand as to why Royalty is paid to Govt.
Royalty is payable in respect of any mineral removed or consumed by the
applicant from the leased area. Therefore, royalty is only payable for the service
obtained if mineral is removed from the land and hence this is not profit a
render.

9.2 Further, in the judgment delivered by the Supreme Court in the case of
India Cement Ltd etc. v. State of Tamil Nadu, etc. (AIR 1990 SC 85), the
Supreme Court held that royalty is separate and distinct from land revenue and
it is not related to land as a unit. On the other hand, royalty is payable on a
proportion of the minerals extracted and it has relationship to mining as also to
the mineral won from the mine under a contract by which royalty is payable on
the quantity of the mineral extracted. Hence, royalty amounts to the
consideration payable by the applicant for the activity undertaken by him and is
a supply.

9.3 Regarding the nature of supply, the royalty is the payment which is
clearly towards the licensing services for exploration of natural resources.
Therefore, royalty is a fee paid to a property owner for the right to use their
property, and it's different from a tax. The consideration is payable in the form
of royalty and the activity of assignment of rights to use natural resources is
treated as supply of services and the licensee is required to pay tax on the
amount of consideration paid in the form of royalty under reverse charge
mechanism.

Classification of Royalty/Surface Rent:

10.1 Regarding the classification of service received by the taxpayer, I observe

that the Annexure attached to Notification No.11/2017–Central Tax (Rate) dated
28.06.2017 prescribes the Service Accounting Code for each type of services.
These are:

(I) Heading 9973 Leasing or rental services with or without operator

Group Leasing or rental services concerning machinery and equipment

99731 with or without operator
Group Leasing or rental services concerning other goods
99732
Group Licensing services for the right to use intellectual property and
GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

99733 similar products

From the above, it is observed that the service received by the taxpayer is not
covered under Group 99731 or Group 99732, and therefore the services covered
under Group 99733 or else by any other group are referred to in following
paras.

(II) Further, the Group 99733 consists of the following Headings

Service
Code Service Description
(Tariff)
997331 Licensing services for the right to use computer software and databases
997332 Licensing services for the right to broadcast and show original films, sound
recordings, radio and television programme and the like
997333 Licensing services for the right to reproduce original art works
997334 Licensing services for the right to reprint and copy manuscripts, books,
journals and periodicals
997335 Licensing services for the right to use research and development products
997336 Licensing services for the right to use trademarks and franchises
997337 Licensing services for the right to use minerals including its exploration and
evaluation
997338 Licensing services for right to use other natural resources including
telecommunication spectrum
997339 Licensing services for the right to use other intellectual property products
and other resources nowhere else classified
10.2 From the above, it is observed that the nature of service received by the
taxpayer is covered under the Service Accounting Code 997337-​- Licensing
services for the right to use minerals including its exploration and evaluation.
Alternatively, in the present case, the Government has been providing the service of
licensing services for the right to use minerals after its exploration and evaluation to
the taxpayer, has to pay a consideration to the Government for the same.

10.3 Further as per the sectorial FAQ published by the CBIC (http://cbic-
gst.gov.in/sectoral-faq.html) in reply of Q.No.30 of “Government Services” state
that annual license fees payment made towards Licensing services for
exploration of natural resources is treated as supply of services. The extract of
the same is as under:

“The Government provides license to various companies including Public Sector Undertakings
for explora on of natural resources like oil, hydrocarbons, iron ore, manganese, etc. For
having assigned the rights to use the natural resources, the licensee companies are
required to pay considera on in the form of annual license fee, lease charges, royalty, etc.
to the Government. The ac vity of assignment of rights to use natural resources is treated
as supply of services and the licensee is required to pay tax on the amount of consideration
paid in the form of royalty or any other form under reverse charge mechanism.”
GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

10.4 In view of above discussion, I find that the payment of Royalty is

consideration against services received from the Govt. and such service is duly
covered under Service Accounting Code 997337​--Licensing services for the
right to use minerals including its exploration and evaluation.

Rate of GST on Royalty:

11.1 I observe that with regard to the rate of GST on above services, the
Central Board of Indirect Taxes and Customs (CBIC) has clarified such rate to
b e 18%. For better appreciation, the relevant extract of Board Circular
No.164/20/2021-GST dated 06.10.2021 is extracted herein below which makes
it abundantly clear what rate is prescribed for such services: -

“9. Services by way of grant of mineral exploration and mining rights

9.1 Representa ons have been received reques ng for clarifica on as to the rate of GST
applicable on supply of services by way of gran ng mineral explora on and mining rights during
the period from 1.07.2017 to 31.12.2018. With effect from 1.1.2019, the rate schedule has been
specifically amended and it is undisputed since then that such service a racts GST at the rate
of 18%.
9.2 For the disputed period [ 1.7.2017 to 31.12.2018], divergent rulings have been issued by
Authori es for Advance Ruling (AAR) and Appellate Authori es for Advance Ruling (AAAR) of
various States on the GST rate applicable on the same. AAR, Haryana in case of M/s Pioneer
Partners and AAR, Chha sgarh in case of M/s NMDC have ruled that the service of grant of
mining leases is classifiable under Service Code 997337 (licensing services for the right to use
minerals including its explora on and evalua on) and a racted, prior to 01.01.2019, the same
rate of GST as applicable to minerals, that is, 5% as prescribed against Sl. No. 17, item (viii) of
No fica on No. 11/2017-Central Tax (Rate). The rate prescribed against this entry prior to
01.01.2019 was “the same rate as applicable on supply of like goods involving transfer of tle in
goods”. In certain other advance rulings, a view has been taken that grant of rights for mineral
explora on and mining would be covered under heading 9991 and would a ract GST at the rate
of 18%.
9.2.1 AAAR, Odisha, on the other hand has ruled vide Order dated 5.11.2019 in the case of M/s
Penguin Trading and Agencies Limited that grant of mining lease was taxable @ 18% prior to
01.01.2019. The Appellate Authority in this case observed that GST rate applicable against Sl. No.
17 item (viii) of No fica on No. 11/2017-Central Tax (Rate) prior to 01.01.2019 was not
implementable. Unlike leasing or ren ng of goods, there are no underlying goods in case of
leasing of mining area. The rate prescribed for goods cannot be made applicable to leasing of
mining area, which confers the right to extract and appropriate minerals. The mining lease by
Government, not being a lease of any goods, cannot a ract the rate applicable to sale of like
goods. Appellate Authority for Advance Ruling, Odisha has further held that the amendment
carried out vide No fica on No. 27/2018-Central Tax (Rate), dated 31.12.2018,which restricted
the “same rate as applicable to supply of goods involving transfer of tle in goods” only to
leasing or ren ng of goods was to clarify the legisla ve intent as well as to resolve the
unintended interpreta on. It is a se led law that interpreta on which defeats the inten on of
legislature cannot be adopted. It accordingly upheld that “licensing services for the right to use
minerals including its explora on and evalua on” falling under service code 997337 were
taxable @ 18% during 01.07.2017 to 31.12.2018.
9.2.2 It may be noted that the expression “same rate of tax as applicable on supply of like goods
involving transfer of tle in goods” applies in case of leasing or ren ng of goods. In case of grant
of mining rights, there is no leasing or ren ng of goods. Hence, the said entry does not extend to
GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

grant of mining rights which is an entirely different activity.

9.3 The issue was placed before theGST Council in its 45th meeting held on 17.9.2021.
9.3.1 As regards classifica on of service, it was recommended by the Council that service by way
of grant of mineral explora on and mining rights most appropriately fall under service code
997337, i.e. “licensing services for the right to use minerals including its explora on and
evaluation”.

9.3.2 As regards the applicable rate for the period from 1.7.2017 to 31.12.2018, the council
took note of the following facts, namely, -

(i) GST Council in its 4th mee ng held on 3rd & 4th November, 2016 had decided that supply of
services shall be generally taxed at the rate of 18%.
(ii) More importantly, the GST Council in its 14th mee ng held on 18th & 19th May, 2019, while
recommending the rate schedules of services (5%, 12%, 18% and 28%), specifically
recommended that all the residuary services would attract GST at the rate of 18%.
(iii) The rate applicable on the service of grant of mineral explora on license and mining lease
under Service Tax was also the standard rate of 15.5%. Services under this category have been
standard rated in GST at 18%
(iv) Therefore, the inten on has always been to tax this ac vity / supplyat standard rate of
18%.

9.3.3 Accordingly, as recommended by the Council, it is clarified that even if the rate schedule
did not specifically men on the service by way of grant of mining rights, during the period
1.7.2017 to 31.12.2018, it was taxable at 18% in view of principle laid down in the 14th
mee ng of the Council for residuary GST rate. Post, 1st January, 2019 no dispute remains as
stated above.”

11.2 From the perusal of above Circular, it is clarified by the Board that Rate
of GST on “licensing services for the right to use minerals including its exploration
and evaluation” falling under service code 997337 would be taxable @ 18%
during 01.07.2017 to 31.12.2018 and thereafter.

GST liability under RCM:

12.1 Now, I observe the issue regarding as to who is liable to pay the above
tax, the relevant extract of Notification No. 13/2017 – Central Tax (Rate) dated
28.06.2017 is referred to which stipulates at Serial No. 5, that the tax leviable
under section 9 of the CGST Act shall be paid on reverse charge basis by the
recipient of such services, and the entry reads as under:

Sl.No. Category of Supply of Services Supplier of Recipient of

Service Service
5 Services supplied by the Central Government, StateCentral Any
Government, Union Territory or Local Authority to aGovernment, business
business en ty, excluding – (1) ren ng of State entity
immovable property, and (2) services specified Government, located in
below – (i) services by Department of Posts by way Union Territory the taxable
of speed post, express parcel post, life insurance, or local territory.
and agency services authority
GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

provided to a person other than Central

Government, State Government or Union Territory
or local authority; (ii) services in rela on to an
aircraft or a vessel, inside or outside the precincts of
a port or an airport; (iii) transporta on of goods or
passengers

12.2 The above notification was amended vide Noti.No.03/2018-Central Tax

(Rate) dated 25.01.2018, which inter-alia mention that;

i. in the Table, after serial number 5 and the entries relating thereto, the following serial
number and the entries relating thereto shall be inserted, namely: -

(1) (2) (3) (4)

“5A Services supplied by the Central Central Any person
Government, State Government, Union Government, State registered under
territory or local authority by way of Government, the Central
ren ng of immovable property to a Union territory or Goods and
person registered under the Central local authority Services Tax Act,
Goods and Services Tax Act, 2017 (12 of 2017.”;
2017).

12.3 The above notification was further amended vide Noti.No.05/2019-

Central Tax (Rate) dated 29.03.2019, which inter-alia mention that;

“(i) in the Table, after serial number 5A and the entries relating thereto, the following serial
number and entries shall be inserted, namely: -

(1) (2) (3) (4)

“5B Services supplied by any person by way of transfer of Any person Promoter.
development rights or Floor Space Index (FSI) (including
additional FSI) for construction of a project by a promoter.

5C Long term lease of land (30 years or more) by any person Any person Promoter.”;
against consideration in the form of upfront amount (called
as premium, salami, cost, price, development charges or by
any other name) and/or periodic rent for construction of a
project by a promoter.

12.4 I observe that in the present case, the transaction is between the State
Government and the taxpayer. Further, the taxpayer being the operator, the
services are supplied by the State Government to The taxpayer and nature of
such transaction is not covered under the exceptions given in the above
notifications. Hence, the taxpayer, being the recipient of such service, is rightly
required to pay GST under reverse charge mechanism in terms of above
Notification No.13/2017 – Central Tax (Rate) dated 28.06.2017 as amended vide
Noti.No.03/2018-Central Tax (Rate) dated 25.01.2018 and vide
GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II I/2582300/2024

Noti.No.05/2019-Central Tax(Rate) dated 29.03.2019.

13. In view of the clear statutory provisions as mentioned above, I observe

that the royalty paid to the Govt. is a part of the consideration payable for the
Licensing services for right to use minerals including exploration and
evaluation falling under the Head 9973 which is taxable at 9% CGST and 9%
SGST from 01.07.2017 onwards under the residual entries of Serial No.17 of
the Notification No.11/2017-Central Tax dated 28.06.2017. Since the supply of
services by the Government to a business entity located in the taxable territory,
are covered under Serial No.5 of Notification No.13/2017- Central Tax dated
28.06.2017 as amended, the liability to pay tax is on the recipient of such
services on reverse charge mechanism as the Licensing services for right to use
minerals including exploration and evaluation are provided by the State
Government to a business entity, i.e., the taxpayer.

13.1 I observe that the culpable mental state of the taxpayer is apparent from
the fact that though they in spite of having GST registration, have not shown
this transaction in their GSTR-1/ GSTR-3B returns, not paid applicable GST
and hence they have not paid the due GST, from which, it is apparent that they
had intentionally suppressed above mention facts with clear intent to evade
payment of tax, not paid the GST on Royalty paid to the Govt. Further, I observe
that the taxpayer was given enough opportunity vide DRC-01A dated
24.04.2024, SCN dated 27.06.2024 & personal hearings dated 05.11.2024,
14.11.2024 & 22.11.2024 to clarify the matter.

Legal provisions relevant to the case:

14. I now peruse the relevant provisions applicable for payment of GST by
the taxpayer, as under;

14.1 Cross empowerment of Central Tax/CGST officers: The Government

has authorized officers of CGST as well as SGST as proper officer under Section
6 of CGST Act 2017. Section 6 of Gujarat Goods and Services Tax Act, 2017
also deals with such authorization. The relevant portions of the said Acts are
reproduced hereunder for ease of reference:

A. Section 6 of CGST Act 2017:

“6. (1) Without prejudice to the provisions of this Act, the officers appointed under the
State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act are
authorized to be the proper officers for the purposes of this Act, subject to such condi ons
as the Government shall, on the recommendations of the Council, by notification, specify.
(2) Subject to the conditions specified in the notification issued under sub-section (1), ––
(a) where any proper officer issues an order under this Act, he shall also issue an order
under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax
Act, as authorized by the State Goods and Services Tax Act or the Union Territory Goods
and Services Tax Act, as the case may be, under in ma on to the jurisdic onal officer of
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State tax or Union territory tax;

(b) where a proper officer under the State Goods and Services Tax Act or the Union
Territory Goods and Services Tax Act has ini ated any proceedings on a subject ma er, no
proceedings shall be ini ated by the proper officer under this Act on the same subject
matter.
(3) Any proceedings for rec fica on, appeal and revision, wherever applicable, of any
order passed by an officer appointed under this Act shall not lie before an officer appointed
under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax
Act.”

B. Section 6 of SGST Act 2017:

“6. (1) Without prejudice to the provisions of this Act, the officers appointed under the
Central Goods and Services Tax Act are authorized to be the proper officers for the
purposes of this Act, subject to such condi ons as the Government shall, on the
recommendations of the Council, by notification, specify.
(2) Subject to the conditions specified in the notification issued under sub-section (1),
(a) where any proper officer issues an order under this Act, he shall also issue an order
under the Central Goods and Services Tax Act, as authorized by the said Act under
intimation to the jurisdictional officer of central tax;
(b) Where a proper officer under the Central Goods and Services Tax Act has ini ated any
proceedings on a subject ma er, no proceedings shall be ini ated by the proper officer
under this Act on the same subject matter.

(3) Any proceedings for rec fica on, appeal and revision, wherever applicable, of any
order passed by an officer appointed under this Act, shall not lie before an officer
appointed under the Central Goods and Services Tax Act.”

14.2 Thus, from the above, it is clear that the officers of Central Tax as well as
officer of State Tax, both are the Proper Officer for the purpose of Section 6 of
CGST Act as well as SGST Act and any of them can initiate any proceeding
under this Act.

14.3 As per Section 9. Levy and collection:

“(1) Subject to the provisions of sub-sec on (2), there shall be levied a tax called the
central goods and services tax on all intra-State supplies of goods or services or both,
except on the supply of alcoholic liquor for human consump on, on the value determined
under sec on 15 and at such rates, not exceeding twenty per cent., as may be no fied by
the Government on the recommenda ons of the Council and collected in such manner as
may be prescribed and shall be paid by the taxable person.
(2) ………………………………
(3) The Government may, on the recommenda ons of the Council, by no fica on, specify
categories of supply of goods or services or both, the tax on which shall be paid on reverse
charge basis by the recipient of such goods or services or both and all the provisions of this
Act shall apply to such recipient as if he is the person liable for paying the tax in rela on to
the supply of such goods or services or both.
(4) …………………………………………….
(5) ………………………………………………”

14.4 As per Section 49(7) & 49(8) of the CGST Act, 2017:
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“49(7) All liabili es of a taxable person under this Act shall be recorded and maintained in
an electronic liability register in such manner as may be prescribed.
49(8) Every taxable person shall discharge his tax and other dues under this Act or the
rules made thereunder in the following order, namely: ––
(a) Self-assessed tax and other dues related to returns of previous tax periods;
(b) Self-assessed tax and other dues related to the return of the current tax period;
(c) Any other amount payable under this Act or the rules made thereunder including the
demand determined under section 73 or section 74.”

14.5 As per Section 59 of the CGST Act, 2017;

“Every registered person shall self-assess the taxes payable under this Act and furnish a
return for each tax period as specified under section 39”.

14.6 As per Section 74 (1) of the CGST Act, 2017;

“Where it appears to the proper officer that any tax has not been paid or short paid or
erroneously refunded or where input tax credit has been wrongly availed or u lized by
reason of fraud, or any willful-misstatement or suppression of facts to evade tax, he shall
serve no ce on the person chargeable with tax which has not been so paid or which has
been so short paid or to whom the refund has erroneously been made, or who has wrongly
availed or utilized input tax credit, requiring him to show cause as to why he should not pay
the amount specified in the no ce along with interest payable thereon under sec on 50
and a penalty equivalent to the tax specified in the notice.
Explana on 2.–– For the purposes of this Act, the expression “suppression” shall mean
non-declara on of facts or informa on which a taxable person is required to declare in the
return, statement, report or any other document furnished under this Act or the rules made
thereunder, or failure to furnish any informa on on being asked for, in wri ng, by the
proper officer.”

14.7 As per Section 37 (1) of CGST Act, 2017;

“Every registered person, other than an Input Service Distributor, a non-resident taxable
person and a person paying tax under the provisions of sec on 10 or sec on 51 or sec on
52, shall furnish electronically, in such form and manner as may be prescribed, the details
of outward supplies of goods or services or both effected during a tax period on or before
the tenth day of the month succeeding the said tax period and such details shall be
communicated to the recipient of the said supplies within such me and in such manner as
may be prescribed.”

14.8 As per Section 39 (1) of CGST Act, 2017;

“Every registered person, other than an Input Service Distributor or a non-resident taxable
person or a person paying tax under the provisions of sec on 10 or sec on 51 or sec on 52
shall, for every calendar month or part thereof, furnish in such form and manner as may be
prescribed, a return, electronically, of inward and outward supplies of goods or services or
both, input tax credit availed, tax payable, tax paid and such other par culars as may be
prescribed, on or before the twen eth day of the month succeeding such calendar month
or part thereof.”

14.9 As per Section 50 (1) of CGST Act, 2017;

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“Every person who is liable to pay tax in accordance with the provisions of this Act or the
rules made thereunder, but fails to pay the tax or any part thereof to the Government
within the period prescribed, shall for the period for which the tax or any part thereof
remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as
may be notified by the Government on the recommendations of the Council:”

14.10 As per Section 122 (2);

“Any registered person who supplies any goods or services or both on which any tax has
not been paid or short-paid or erroneously refunded, or where the input tax credit has been
wrongly availed or utilised,-
(a) ………….;
(b) for reason of fraud or any wilful misstatement or suppression of facts to evade tax,
shall be liable to a penalty equal to ten thousand rupees or the tax due from such person,
whichever is higher.”

Contravention of Provisions:

15. From the foregoing paras, I observe that the taxpayer has contravened
the following provisions of the CGST Act, 2017, and Rules made there under:

i. Section 37 & 39 of the CGST Act, 2017 read with Rule 59 of CGST Rules, 2017
by not furnishing details of supplies under RCM affected during the relevant
period.
ii. Section 49 and Section 39(7) of the CGST Act, 2017read with Rule 85/86/87 of
the CGST Rules, 2017 in as much as they failed to pay their appropriate GST
liability for the relevant period.
iii. Section 59 of the CGST Act, 2017 and Rules made there under in as much as
they have failed to assess their tax liability and furnish return for each tax
period as specified under Section 39 of the said Act.
iv. Section 50 of the said Act and the Rules made there under in as much as they
have failed to pay interest on delayed payment of their GST liability for the
relevant period.

Grounds for invoking extended period of limitation:

16.1 I observe that the taxpayer was required to self-assess their GST liability
in respect of the amount paid by them to Govt. of India/ State Government as
per Section 59 of the CGST Act, 2017 and to pay the said amount of GST so
assessed by the due date by filing returns in terms of Section 39 of the CGST
Act, 2017. Since, the taxpayer did not declare/disclose the value of the said
services received in their statutory returns, the department remained fully
unaware of their activities and thus, the taxpayer have contravened various
provisions of the CGST Act, 2017 and the Rules made thereunder as discussed
above. By not showing these taxable supplies in their returns and not disclosing
the material facts in this regard with the department, the taxpayer have
suppressed the fact of receipt of taxable supply of services during the period
July-2017 to November-2022 with an intent to evade payment of GST.
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16.2 I further observe that the taxpayer has suppressed the payment of royalty
made to the government in their statutory returns with an intention to evade
tax. It was only after specific intelligence gathered by the GST department from
the department of Geology & Mining, Govt. of Gujarat, Gandhinagar, it came to
the knowledge of the department that the taxpayer had not paid the GST on the
royalty payment made to the government. Therefore, I find that the taxpayer
deliberately withheld the information from the department about service
received and amounts paid by them by way of not showing the details in their
statutory returns viz. GSTR-1/GSTR-3B/Annual Returns. Further, they had
also not reflected the transaction under any heading in the prescribed GSTR-3B
return format. From the above, it is apparent that they had intentionally not
paid the GST on the royalty payment made to the government for the lease hold
rights. Hence, the taxpayer have suppressed the facts and contravened the
aforesaid provisions of the CGST Act, 2017/ the SGST Act, 2017 and the Rules
made there under with an intent to evade payment of Goods and Services Tax.
Further, I note that after the implementation of the Goods and Service Tax, the
government has reposed absolute trust on the taxpayer to maintain simple
accounts of the business transactions disclosing all particulars as are normally
expected of from the point of view of tax compliance. Therefore, the burden to
establish that the taxpayer have paid all the due GST and complied with all the
requirements of law on the basis of records maintained by them solely lies on
them. Therefore, I observe that the taxpayer deliberately withheld the
information from the department about receipt of services provided by the
government and royalty payment made by them by way of not showing the
details in GSTR-1/GSTR-3B returns during the relevant period. The above said
non-payment is detected only after inquiry initiated by CGST department,
therefore, had the said non-payment not been detected during the inquiry, it
would have remained unnoticed and huge loss would have been caused to
government exchequer.

17.1 I observe that in the recent judgment dated 25.07.2024 by the Hon’ble
Supreme Court in the Civil Appeal Nos.4056-4064 of 1999 (Mineral Area
Development Authority & Anr. Versus M/S Steel Authority of India & Anr Etc.),
wherein the Apex Court has held that:

“42. In view of the above discussion, the eleven questions referred to this
Bench are accordingly answered. In particular, I hold that:

(i) Sections 9, 9A and 25 of the MMDR Act, 1957 denude or limit the scope
of Entry 50 - List II;

(ii) the majority decision in Kesoram is a serious departure from the law
laid down by the seven judge Bench in India Cement which was wholly
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unwarranted and therefore, in my view, the said majority judgment is

liable to be overruled and is overruled to the extent of holding that
royalty is not a tax;

(iii) taxes on lands and buildings under Entry 49 – List II contemplates a

tax levied directly on the land as a unit having a defined relationship with
the land and does not include mineral bearing lands within its scope;

(iv) in view of the declaration under Section 2 of the MMDR Act, 1957
made in terms of Entry 54 - List I and to the extent of the provisions of the
said Act, the State legislature is denuded of its powers under Enry 50 -
List II; and

(v) Entry 50 - List II is a unique Entry because it is the only taxation Entry
in Lists I and II where the taxing power of a State legislature has been
subjected to “any limitations imposed by Parliament by law relating to
mineral development”. The dictum in MPV Sundararamier has not
discussed on Entry 50 – List II and hence the said decision has no bearing
as such on the present controversy. The conclusion that ‘royalty’ is a ‘tax’
is the only exception to the position of law laid down in MPV
Sundararamier. Of course, the scope of expression “any limitations” in
Entry 50 - List II is wide enough to include the imposition of restrictions,
conditions, principles as well as a prohibition.

43. In the result, in my view, the judgments inIndia Cement, Orissa Cement,
Mahalaxmi Fabric Mills, Saurasthra Cement, Mahanadi Coalfields,
Kannadasan excluding to the extent overruled inTata Iron and Steel, and
Tata Iron and Steel are correct and therefore are binding precedent and
cannot be overruled. On the other hand, the majority judgment in
Kesoram, is overruled to the extent it holds that royalty is not a tax.
”

In this regard, I find that the Apex Court has held that the Royalty is a
contractual consideration paid by the mining lessee to the lessor for enjoyment
of mineral rights. The liability to pay royalty arises out of the contractual
conditions of the mining lease. The payments made to the Government cannot
be deemed to be a tax merely because the statute provides for their recovery as
arrears. I further find that the Apex Court has not denied the levy of GST on
royalty paid to the Government,

17.2 Further, in case of delayed payment of tax, I find that the law prescribes
liability to pay interest under Section 50(1) of the CGST Act, 2017 as under: -

“(1) Every person who is liable to pay tax in accordance with the provisions
of this Act or the rules made thereunder, but fails to pay the tax or any part
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thereof to the Government within the period prescribed, shall for the period for
which the tax or any part thereof remains unpaid, pay, on his own, interest at
such rate, not exceeding eighteen per cent., as may be notified by the Government
on the recommendations of the Council:

Provided that the interest on tax payable in respect of supplies made during
a tax period and declared in the return for the said period furnished after the due
date in accordance with the provisions of section 39, except where such return is
furnished after commencement of any proceedings under section 73 or section 74
in respect of the said period, shall be payable on that portion of the tax which is
paid by debiting the electronic cash ledger.”

I further find that sub-rule (1) of Rule 88B (inserted vide Notification
No.14/2022-CT dated 05.07.2022 (w.e.f. 01.07.2017) of the CGST Rules, 2017
provides that-
“88B. Manner of calculating interest on delayed payment of tax-.
(1) In case, where the supplies made during a tax period are declared by the
registered person in the return for the said period and the said return is furnished
after the due date in accordance with provisions of section 39, except where such
return is furnished after commencement of any proceedings under section 73 or
section 74 in respect of the said period, the interest on tax payable in respect of
such supplies shall be calculated on the portion of tax which is paid by debiting
the electronic cash ledger, for the period of delay in filing the said return beyond
the due date, at such rate as may be notified under sub-section (1) of section 50.”

17.3 From the above, it appears that the GST amounting to Rs. 33,95,204/-
for the period July’2017 to Nov.2022 on royalty paid to the Government is
required to be recovered from the taxpayer along with interest under the
provisions of Section 74(1) and Section 50(1) of CGST/GGST Act, 2017. I also
hold that as the taxpayer have contravened the provisions of the CGST
Act/Rules, they have rendered themselves for imposition of penalty as
prescribed under Section 122(2) (b) read with Section 74(1) of the CGST/GGST
Act, 2017.

1 7 . 4 However, in the Civil Appeal Nos.4056-4064 of 1999 (Mineral Area

Development Authority & Anr. Versus M/S Steel Authority of India & Anr
etc.), Hon’ble Supreme Court in the judgement dated 14.08.2024 concluded
as follow:

“E. Conclusion

24. The submission that MADA (supra) should be given prospective effect is
rejected.

25. Bearing in mind the consequences that would emanate from the past period,
the following conditionalities are directed to prevail:

a. While the States may levy or renew demands of tax, if any, pertaining to
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Entries 49 and 50 of List II of the Seventh Schedule in terms of the law laid down
in the decision in MADA (supra) the demand of tax shall not operate on
transactions made prior to 1 April 2005;

b. The time for payment of the demand of tax shall be staggered in

instalments over a period of twelve years commencing from 1 April 2026;
and

c. The levy of interest and penalty on demands made for the period before
25 July 2024 shall stand waived for all the assesses.”

In view of the above, I further find that as per judgment of Hon’ble

Supreme Court, States may levy or renew demands of tax only on the
transactions made after 01.04.2005 and not before that. Also, the tax such
demanded is to be recovered in installments over a period of 12 years
commencing from 01 April 2026; & interest and penalty is waived off for
all demand of duty/taxes in this regard, for the period before 25.07.2024.

17.5 Hence, in view of the above discussion and findings, I hold that the
unpaid GST amounting to Rs. 95,89,656/- is rightly recoverable under Section
74(1) of the said Act and the Rules made thereunder from the taxpayer.
However, interest as applicable under Section 50(1) and penalty as prescribed
under Section 122(2) (b) read with Section 74(1) of the said Act and the Rules
made thereunder has to be waived off as per Hon’ble Supreme Court judgement
dated 14.08.2024.

17.6 I observe that as per Section 170 ibid, Rounding off of tax, etc.— The
amount of tax, interest, penalty, fine or any other sum payable, and the amount
of refund or any other sum due, under the provisions of this Act shall be
rounded off to the nearest rupee and, for this purpose, where such amount
contains a part of a rupee consisting of paise, then, if such part is fifty paise or
more, it shall be increased to one rupee and if such part is less than fifty paise
it shall be ignored. Therefore, by strictly following Section 170 ibid the total GST
liability is rounded off to Rs. 33,95,204/-.

18 I note that for the administration and collection of State Goods and
Services tax in respect of Gujarat State, an Act is in operation in respect of
Jurisdiction of Gujarat state. This Act is titled as “The Gujarat State Goods and
Services Tax Act, 2017” and it contains the provisions exactly similar and
identical to the CGST Act, 2017 as referred above. Since, it is only repetition;
the provisions of the Gujarat SGST Act, 2017 are not reproduced in this order.
Moreover, wherever the “Central Goods & Services Tax Act or CGST Act- 2017”
(as amended) is mentioned here in this order the same must be read as “both
“Central Goods & Services Tax Act -2017 & Gujarat SGST Act-2017 (as
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amended) or CGST Act-2017 & GSGST Act-2017 (as amended)”. As per Section
6 of the Gujarat SGST Act-2017 (as amended) the officers appointed under the
Central Goods and Services Tax Act are authorised to be the proper officers for
the purposes of Gujarat SGST Act. Thereby the undersigned is authorized and
is proper officer to issue this order to recover tax, ITC, the penalties, fee and
applicable interest under Gujarat GST Act along with CGST Act.

19. As per Section 6 of the Gujarat GST Act-2017 (as amended) the officers
appointed under the Central Goods and Services Tax Act, 2017 are authorized
to be the proper officers for the purposes of Gujarat GST Act. Thereby the CGST
officer is authorized and proper officer to issue Show Cause Notice to recover
the SGST, penalties and applicable interest under Gujarat GST Act along with
CGST Act, 2017. Further, Member, CBIC, New Delhi vide D.O.F.
No.CBEC/20/43/01/2017-GST (Pt.) dated 05.10.2018 clarified that the
Officers of both Central Tax and State Tax are authorized to initiate intelligence
based enforcement action on the entire taxpayer’s base irrespective of the
administrative assignment of taxpayer to any authority. The authority which
initiates such action is empowered to complete the entire process of
investigation, issuance of SCN, adjudication, recovery, filing of appeal etc.
arising out of such action.

20. On consideration of all the relevant facts, statutory provisions, and

aforementioned findings, I hereby pass the following order under Section 74(9)
of the CGST Act, 2017.

ORDER

(i) I confirm the demand of GST amounting to 33,95,204/- [CGST: Rs.

16,97,602/- + SGST: Rs. 16,97,602/-] for the period July, 2017 to Nov.
2022, in respect of royalty paid to the Government and order to recover
the same under the provisions of Section 74(1) of the CGST Act, 2017
read with the provisions of Section 20 of the IGST Act, 2017 and as per
Hon’ble Supreme Court judgement dated 14.08.2024;

(ii) As per Hon’ble Supreme Court judgement dated 14.08.2024, I waive

off interest demanded on the amount shown at para (i) under Section 50
(1) of the CGST Act, 2017 and GGST Act, 2017 read with the provisions
of the IGST Act, 2017;

(iii) As per Hon’ble Supreme Court judgement dated 14.08.2024, I waive

off the demand of penalty under Section 74(1) of the CGST Act, 2017
read with Section 122(2)(b) of the CGST Act, 2017 in respect of above
para No.(i).
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21. This order is issued without prejudice to any other action that may be
taken against them under CGST Act, 2017 and the Rules framed there under
and/or under any other law for the time being in force.

(Bipinkumar.V. Baria)
Assistant Commissioner
CGST & Central Excise
Division-I(Halol),
Vadodara-II.
फ़ा.सं या:GEXCOM/SCN/GST/3773/2024-CGST-DIV-1-COMMRTE-VADODARA-II
मूल आदेश सं या :- DIV-I/DEMAND/BVB/06/Budhabhai/2024-25
Date:10.12.2024

To,
M/s Budhabhai Balabhai Meghani,
(Legal Name: M/s Budhabhai Balabhai Meghani ),
GSTIN: 24ALWPM3310L3ZS,
499, VASEDI, VASEDI, Chhotaudepur, Gujarat, 391165

Copy to:
1. The Assistant Commissioner (Review), CGST and Central Excise,
Vadodara–II.
2. The Superintendent, CGST & Central Excise, Range-V, Division-I,
Vadodara-II.
3. Guard file.