RCM on royalty stay

The levy of GST on royalty paid for mining leases under the Reverse Charge Mechanism (RCM) is not stayed and remains a settled tax liability as of 2026.

Current Status

• Taxability: The payment of royalty for mining rights granted by the government is classified as a "supply of service" (specifically, "Licensing services for the right to use minerals" under SAC code 997337).

• Liability: Under Notification No. 13/2017-CT (Rate), this service is subject to 18% GST payable by the recipient of the service (the mining lease holder) under the Reverse Charge Mechanism.

• Legal Standing: While there was historical litigation regarding whether royalty constituted a "tax" (and thus was outside the purview of GST), the Supreme Court’s 2024 ruling in the Mineral Area Development Authority & Ors. vs. M/s Steel Authority of India case clarified that royalty is a contractual consideration for the grant of mining rights, not a tax. Following this, various High Courts (such as the Patna High Court) have upheld the applicability of GST on these payments.

Important Considerations

• Enforcement: While the liability has existed since 2017, tax authorities have significantly intensified enforcement and audit processes for these payments in recent years.

• Recipient Liability: The legal liability to discharge the RCM rests with the holder of the mining lease. Contractual arrangements where a third party pays the royalty on behalf of the leaseholder do not automatically shift the GST liability to that third party.

• Compliance: Businesses involved in mining must ensure they are registered for GST (as the standard turnover thresholds do not apply to RCM liabilities) and are properly discharging the 18% tax in cash. Input Tax Credit (ITC) can generally be claimed by the recipient if the services are used for business purposes.

Summary: The GST on mining royalty under RCM is active and legally upheld. It is categorized as a service taxable at 18%, and the liability rests with the mining lease holder. Enforcement is currently high, so ensure your filings are compliant.