1. Case Title

Lead Case:

• Broad Son Commodities Private Limited & Ors. vs. The State of Bihar & Ors.

Connected Cases: 

CWJC Nos. 3531/2022, 16361/2022, 17070/2022, 17077/2022, 17078/2022, 18535/2022, 9140/2023, 9162/2023, 9947/2023, 11538/2023, 16764/2023, 17700/2023, 18206/2023, 2730/2024, 4297/2024, 4562/2024, 6389/2024 

Patna High Court

Decided on: 18 April 2025

 2. Summary of Facts

• Parties: Multiple petitioners (mining leaseholders) challenged GST imposition on royalty paid to the Bihar government for sand mining leases. 
• Contracts: Petitioners secured 5-year mining leases (2015–2019) through auctions. Royalty was payable in annual installments, with amounts escalating yearly. 
• Tax Transition: Pre-GST, petitioners paid 5% VAT on royalties. Post-GST (from 1st July 2017), they paid GST under Reverse Charge Mechanism (RCM):

1. 5%: (2.5% CGST + 2.5% SGST) until 31 December 2018. 
2. 18% (9% CGST + 9% SGST) from 1 January 2019. 

• Advance Ruling: The Authority for Advance Ruling (AAR) classified mining as "licensing services for right to use minerals" (SAC 997337). The Appellate Authority (AAAR) upheld classification but imposed 18% GST retrospectively (from 1 July 2017). 
• Core Dispute: Petitioners argued royalty is a "statutory tax," not consideration for services, making GST levy unconstitutional. 

 3. Key Issues

1. Taxability of Royalty: 

• Whether royalty for mining leases constitutes a "supply of service" under GST. 

2. Constitutional Validity: 

• Whether Article 246A (GST levy) overrides Entry 50, List II (State’s exclusive power to tax mineral rights). 

3. Discrimination: 

• Whether exempting alcohol licenses (Notification No. 25/2019) but taxing mining leases violates Article 14. 

4. Nature of Royalty: 

• Whether royalty is a "tax" (making GST a double tax) or "consideration for service." 

5. Taxable Event Timing: 

• Whether GST applies to pre-GST agreements where royalties are paid post-July 2017. 

4. Decision/Outcome

• All writ petitions dismissed**. 
• GST levy upheld: 

  a. 18% GST (9% CGST + 9% SGST) valid for royalties paid from 1 July 2017. 

• Key Holdings: 
• Royalty is not a tax but "contractual consideration" for mineral rights
• GST on mining leases is a valid "supply of service" under Article 246A.
• No discrimination between mining and alcohol licenses (distinct activities). 
• Taxable event occurs upon **exercise of mineral rights** (extraction), not lease execution. 

 5. Reasoning Behind the Decision

A. Royalty is not Tax (MADA Judgment)

• Constitution Bench SC Ruling (Mineral Area Dev. Auth. v. SAIL, 2024): Royalty is compensatory payment for mineral enjoyment, not a tax. Thus, GST is not "double taxation." 
• Distinction from "Tax": Royalty arises from contract, not sovereign power (Para 79–81). 

B. GST Constitutionally Valid

• Article 246A: Non-obstante clause empowers concurrent GST levy on "supply of services," overriding Entry 50, List II (Para 85–87). 
• Harmonious Interpretation: GST on services and Entry 50 (mineral rights tax) operate in distinct fields (Para 87). 

C. No Discrimination vis-à-vis Alcohol Licenses

• Intelligible Differentia: Mining (resource extraction) and alcohol sales (regulatory license) are fundamentally different (Para 102–104). 
• GST Council’s Prerogative: Exemption for alcohol licenses is a policy decision, not arbitrary (Para 103). 

D. Taxable Event Timing

• Exercise of Rights, Not Transfer: GST triggers upon mineral extraction (post-GST), not lease execution (pre-GST) (Para 85–86). 
• Annual Agreements: Yearly settlements post-July 2017 attract GST irrespective of original tender date (Para 99). 

E. Procedural Grounds Rejected

• Waiver of Arguments: Petitioners failed to challenge taxability before AAR/AAAR, limiting scope (Para 71–73). 
• Digital Signature Absence: Non-fatal to orders (Para 116). 

 6. Impact/Implications

1. Industry Impact: 

• Mining lessees must pay 18% GST on royalties retrospectively (from July 2017). 
• No exemption for pre-GST agreements if royalties paid post-GST. 

7. Legal Precedent: 

• Affirms GST applicability on "mining rights" as a service. 
• Cements MADA judgment (royalty ≠ tax) as binding law. 

8.Constitutional Clarity: 

• Article 246A empowers GST levy even on state-monopolized activities (mining). 
• GST Council’s rate recommendations (18% for residuary services) upheld. 

9. Pending Litigation: 

• Petitions in other High Courts/Supreme Court (e.g., Udaipur Chamber of Commerce v. UOI) must align with this ruling.