India: GST covers mineral mining rights

November 13, 2018


The economic growth of a nation is attributable to the availability of resources and facilities. Industrial development of a country depends chiefly on its mineral resources and their successful utilization. Minerals are a valuable natural resource being the vital raw material for infrastructure, capital goods and basic industries.

India occupies a significant position in production and export of minerals such as coal, lignite, petroleum (crude), bauxite, chromite, copper ore and concentrates, ores of iron, aluminium, magnesium and titanium besides high-grade refractories, lead and zinc concentrates, manganese ore, silver, diamond, limestone, phosphorite and gemstones.

Over the passage of time, the mineral industry of India has seen a vast improvement attributable to the achievements made in the increased quantity of fuel, metallic & non-metallic minerals with the use of latest and technologically advanced machinery along with rise in the value of metallic minerals.

Regulatory set up

While the State Governments of the country remain the owners of the minerals produced, the extraction, processing and commercialization of minerals in India is controlled and governed under the provisions of the below sated guidelines:

  • National Mineral Policy of 2008;
  • Mines and Minerals (Development and Regulation) Act of 1957 (hereinafter referred to as “Mines and Minerals Act”);

GST implication

The Haryana Authority of Advance Rulings (hereinafter referred to as “AAR”) ruled that Mineral mining rights granted by the government will be liable to the Goods and Services Tax (hereinafter referred to as “GST”) at the rate applicable on the supply of the extracted raw material.

The AAR clarified the ambiguity that persisted over the liability of the tax payment with respect to the royalty paid to secure mining license from the State Government. The issue arose as whether such amount was taxable in the hands of the licensees and in such case the rates which shall be applicable.

It was held that the mining rights granted by the Government would qualify as a service liable to tax at the rate applicable to the supply of the mineral being mined in accordance to the reverse charge mechanism requiring recipients to pay tax instead of the supplier for the services provided by the Government. The applicable rate shall be 5% which is valid on the supply of minerals.

The AAR decision is expected to ease the tax burden of the mining sector removing the confusion over the applicability of tax on the miners and the lower rates for such implication. This may result in boosting the mining activities within the nation which may further foster the economy of the country.


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