GST on Mining Royalty for Short-Term Permit Holders in Rajasthan
Royalty paid by short-term mining permit holders to the government is a taxable service subject to the Reverse Charge Mechanism.
- Ruling
- RAJ/AAR/2026-27/14 dated 04.08.2026
- Dated
- 04 Aug 2026
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Royalty payments for mineral extraction are considered a taxable service.
- Short-term permit holders must pay GST under the Reverse Charge Mechanism.
- The tax treatment matches that of long-term mining lease holders.
In short
The company asked if royalty payments made to the Rajasthan government for short-term mineral extraction permits attract Goods and Services Tax (GST) under the Reverse Charge Mechanism (RCM). The Authority for Advance Ruling (AAR) confirmed that these payments are for the service of granting the right to use minerals. Therefore, the permit holder is responsible for paying the tax directly to the government.
What has changed
How it worked before
Many businesses were uncertain if short-term permits carried the same GST obligations as long-term mining leases, leading to inconsistent tax reporting.
What has changed
The authority clarified that the legal nature of the transaction is the same for both leases and short-term permits. In practice, if you hold a short-term permit in Rajasthan, you must now account for GST on your royalty payments under the reverse charge system.
Who this affects
Mining businesses and contractors in Rajasthan holding short-term permits for minor mineral extraction.
An example
A local stone mining firm in Rajasthan holds a short-term permit to extract gravel. They pay a monthly royalty to the state government. Based on this ruling, the firm should treat that royalty as a service fee and pay the applicable GST on it under the reverse charge mechanism.
What you should do
If you hold a similar permit, review your tax filings to ensure you are paying GST on royalties under the reverse charge mechanism. Remember that this ruling only binds the company that asked; your local tax officer may still hold a different view until a final court decision settles the matter nationwide.
If you do nothing
If you ignore this requirement, you risk being hit with tax demands, interest, and penalties during a future audit. Because this ruling is not a universal law, your tax officer might disagree with your interpretation, leading to lengthy disputes. Always consult with your tax advisor before changing your reporting based on a single ruling.
The terms explained
- Reverse Charge Mechanism
- A system where the person receiving a service pays the tax directly to the government instead of the person providing the service.
- Royalty
- A payment made to the government for the right to extract and use minerals from a specific area.
- Short-Term Permit
- A temporary legal authorization granted by the state to extract minor minerals for a limited period.
The ruling in detail
Authority for Advance Ruling
M/s PINKCITY DEVELOPERS
RAJ/AAR/2026-27/14 dated 04.08.2026 · Rajasthan
Questions before the authority
- Whether the royalty paid or payable by M/s Pink City Developers, as a Short-Term Permit holder in a mining area in Rajasthan, to the Government of Rajasthan is 'consideration for a service of granting the right to use minerals or mineral resources', taxable under SAC 997337, and liable to GST under the Reverse Charge Mechanism?
- Whether the GST position applicable to a Quarry Lease or Mining Lease holder under the RMMCR, 2017 and the MMDR Act, 1957, in relation to payment of GST on royalty under RCM, also applies to M/s Pink City Developers as a Short-Term Permit holder?
Facts
The applicant intends to obtain a Short-Term Permit (STP) under the Rajasthan Minor Mineral Concession Rules, 2017 to engage in the extraction of minor minerals. Under this arrangement, the applicant is required to pay royalty to the State Government for the minerals extracted. The applicant sought a ruling on whether this royalty payment constitutes a taxable supply of service under the Reverse Charge Mechanism.
Ruling
| Question | What the authority ruled |
|---|---|
| Taxability of royalty under RCM for STP holder | Yes, it is consideration for a service of granting the right to use minerals, taxable under SAC 997337, and liable to GST under RCM. None |
| Applicability of RCM position to STP holder | Yes, the legal position applicable to a Quarry Lease/Mining Lease holder is equally applicable to the applicant. None |
The Authority ruled that the royalty paid by the applicant to the State Government constitutes consideration for a taxable supply of service. Consequently, the applicant is liable to discharge GST on the royalty amount under the Reverse Charge Mechanism. The Authority further held that the legal position applicable to Quarry Lease or Mining Lease holders regarding RCM liability is equally applicable to Short-Term Permit holders.
Reasoning
The Authority determined that the grant of the right to use minerals by the State Government for a consideration (royalty) constitutes a supply of service under Section 7(1) of the CGST Act. This service is classified under SAC 997337 and is covered under the Reverse Charge Mechanism pursuant to Notification No. 13/2017-Central Tax (Rate). The Authority reasoned that the nature of the transaction—granting the right to use minerals—remains the same regardless of whether the instrument is a Quarry Lease or a Short-Term Permit. It relied on the Supreme Court decision in Mineral Area Development Authority v. Steel Authority of India to characterize royalty as contractual consideration rather than a tax.
Provisions relied on
- Section 7(1) of the CGST Act, 2017
- Section 9(3) of the CGST Act, 2017
- Notification No. 13/2017-Central Tax (Rate)
- Notification No. 11/2017-Central Tax (Rate)
- Notification No. 27/2018-Central Tax (Rate)
- CBIC Circular No. 164/20/2021-GST
- Rule 51 of the Rajasthan Minor Mineral Concession Rules, 2017
For the practitioner
This ruling confirms that **royalty paid by Short-Term Permit holders** is subject to GST under the **Reverse Charge Mechanism** at the same rate as regular mining lease holders. It provides clarity for STP holders in Rajasthan to ensure compliance with their tax obligations. However, it notes that the ruling is issued without prejudice to the outcome of any pending litigation regarding the general leviability of GST on mining royalty.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/3-order_14_pinkcity_developers.pdf
Legibility of the scan, as read: high.
Prepared 11-10-2026.
About Patron Accounting LLP
Patron Accounting LLP is a CA and CS-led accounting and compliance firm that has been working with businesses across India since 2019. We handle the work that keeps a company correct with every department it answers to: day-to-day bookkeeping and accounting, GST registration and returns, income tax filing and assessments, TDS, payroll and PF/ESI, company and LLP incorporation, ROC and MCA compliance, statutory and internal audit, physical stock and inventory audits, trademark and other registrations, and the certificates and reports that banks, buyers and regulators ask for.
Our clients range from a first proprietorship registering for GST to established companies running operations across several states. Much of our work is exactly this: reading what a department has published and telling a business, in plain terms, whether it changes anything for them.
We operate from five offices and serve clients across the rest of India remotely:
- Pune (HQ): RTC Silver, B4-708, Sai Satyam Park, Wagholi, Pune, Maharashtra 412207
- Mumbai: 104, Rajshila Building, 597 J.S.S. Road, Marine Lines, Mumbai 400002
- Delhi: 3rd Floor, B-6/154-155, Sector 5, Rohini, Delhi 110085
- Gurugram: Pioneer Urban Square, B109, Golf Course Ext Road, Sector 62, Gurugram 122098
- Ahmedabad: Phoenix Tower, 1107, near Commerce Six Road, Drive In Road, Navrangpura, Ahmedabad, Gujarat 380009
If anything on this page affects you and you would like somebody to look at your own position, we are glad to help. Call +91 94594 56700, write to sales@patronaccounting.com, or visit patronaccounting.com. The first conversation costs nothing.