The Supreme Court upcoming hearings and eventual ruling on whether GST or Service Tax applies to mining royalties will clarify a critical aspect of India's tax regime. The decision will not only resolve the existing legal ambiguity but also influence the financial and operational landscape for mining entities in the country.

A 9-judge Constitution bench recently ruled that royalty on mining leases cannot be considered a tax. This decision provides significant context for the Supreme Court's forthcoming examination. On July 24, the bench issued an order concerning 61 petitions addressing the GST versus Service Tax question on mining royalties. The batch of petitions will be heard in the third week of August.

Key Issues:- Whether mining royalties should be considered as a consideration for services rendered (and thus subject to GST or Service Tax) or as something else entirely. Further, Determining whether GST or Service Tax should be applied to these royalties, given the overlapping and evolving nature of India's tax laws.

Historical Context: The Rajasthan High Court in the case of Udaipur Chambers of Commerce & Industry v. Union of India, it was t observed that royalties are a consideration for mining operations leased by the lessor. This implies that the right to use minerals in a leased area constitutes a ‘service,' making it taxable under the service tax regime. This decision is among those being challenged in the current petitions.