Service Tax on Royalty paid on Mining Lease —– The petitioners challenged the applicability of service tax on yearly installments in respect of assignment of right to use any natural resource, more specifically a mining lease granted by Government. The petitioners submitted that the notification dated 13.4.2016 and its clarification is ultra-vires to provisions of the enabling Act. While executing mining lease no service is rendered either by the State Government or the mining lease holder, as such, no question arises to levy service tax. The court observed that the mining operations by a mining lease holder are absolutely dependent to payment of royalty and no mining activity by any mining holder shall be valid without payment of royalty. The mining lease executed is nothing but a contract to undertake mining operations in the leased mining area. In general, “consideration” is the price for a promise and is an essential ingredient for a contract. It is a value received as incentive for the promise and a contract without that is not binding on the parties. The royalty is nothing but a “consideration” to have mining operations in the leased area on execution of a mining lease. The royalty being “consideration” certainly places assignment of right to use natural resources deposited in the leased area as a “service” as defined under Section 65-B(44) of the Act of 1994. The notification dated 13.4.2016 is not at all in conflict with its enabling Act i.e. the Finance Act, 1994 and the same does not suffer from any illegality.

Held that:- The Hon’ble High Court dismissed the petition, as the writ are bereft of merit.