CESTAT: No Service Tax on Royalty under RCM if Mining Lease Was Executed Before 1 April 2016

Last updated: 11 September 2026

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The CESTAT has ruled that royalty payments from mining leases executed before 1 April 2016 are not subject to service tax under the Reverse Charge Mechanism (RCM). The Tribunal remanded a case to the adjudicating authority to verify the execution date of the lease agreements. If confirmed to be pre-April 2016, the assessee will not be liable for service tax or penalties, benefiting from Section 66D of the Finance Act, 1994.

Court :
Delhi

Brief :
The CESTAT, New Delhi, in M/s Mangalam Cement Ltd. v. Commissioner, CGST & Central Excise, Udaipur, examined whether service tax was payable under the Reverse Charge Mechanism (RCM) on royalty paid for a mining lease for the period 1 April 2016 to 13 June 2017.

Citation :
Service Tax Misc Application No. 50067 of 2026 in Service Tax Appeal No. 50781 of 2020

The appellant contended that its mining lease agreements had been executed before 1 April 2016 and, relying on various earlier CESTAT decisions, argued that royalty was not liable to service tax under RCM in such circumstances.

The Tribunal noted that the relevant mining lease agreements had not been produced before the lower authorities. Therefore, it set aside the impugned order and remanded the matter to the adjudicating authority to verify whether the agreements were actually executed before 1 April 2016.

Importantly, the Tribunal observed that where a mining lease agreement was executed prior to 1 April 2016, the assessee would not be liable to pay service tax under RCM and would be entitled to the benefit of Section 66D of the Finance Act, 1994. In such a case, no penalty would also be imposable.

Accordingly, the appeal was allowed by way of remand, with directions to the appellant to produce the mining lease agreements within seven days. The adjudicating authority was directed to pass an appropriate order within 60 days after verification and after providing an opportunity of hearing.

This AI-generated summary is for informational purposes only. Please view attached original judgment for the complete text and authoritative interpretation.

FAQ :

Royalty on mining leases is exempt from service tax under RCM if the mining lease agreement was executed before 1 April 2016.

The 1 April 2016 date is crucial because agreements executed before this date are generally exempt from service tax on royalties under RCM, as per Section 66D of the Finance Act, 1994.

The CESTAT remanded a case to the adjudicating authority to verify if the mining lease agreements were executed before 1 April 2016. If so, service tax under RCM would not apply.

The appellant must produce the relevant mining lease agreements within seven days to the adjudicating authority for verification.

The adjudicating authority has been directed to pass an appropriate order within 60 days after verification and providing a hearing opportunity.