GST on Mining Lease Royalty Payments in Maharashtra
The Maharashtra Authority for Advance Ruling confirmed that royalty paid for mining leases is a taxable service subject to 18% GST.
- Ruling
- GST-ARA-06/2020-21/B-626, dated 28.11.2025
- Dated
- 28 Nov 2025
- 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 mining leases are classified as licensing services under SAC 997337.
- The service is taxable at 18% GST under the Reverse Charge Mechanism.
- The authority rejected the 5% rate, ruling it is not a transfer of goods.
In short
The company asked whether royalty payments made to the government for mining leases should be taxed at 5% as a transfer of goods or at a higher rate as a service. The Authority for Advance Ruling (AAR) decided that these payments are for the right to use minerals, which is a service, not a transfer of tangible goods.
What has changed
How it worked before
Businesses were uncertain whether mining royalties should be treated as a transfer of goods at a lower tax rate or as a service at the standard rate.
What has changed
The ruling clarifies that mining royalties are taxable at 18% under the Reverse Charge Mechanism (RCM). This means businesses must pay this tax directly to the government rather than the government collecting it from the miner.
Who this affects
Mining and quarrying businesses that pay royalty or dead rent to the state government for mineral extraction rights.
An example
A stone quarry operator in Maharashtra pays a monthly royalty to the state government for extraction rights. They previously assumed this was a 5% tax transaction. Based on this ruling, they should now classify this as an 18% service under the Reverse Charge Mechanism to avoid future tax disputes.
What you should do
If you pay mining royalties, you should prepare to account for 18% GST under the Reverse Charge Mechanism. Remember that an Advance Ruling only binds the specific business that asked for it and their local tax office; it is not a universal law for all miners.
If you do nothing
If you assume this ruling applies to you and pay the wrong rate, or fail to pay under the Reverse Charge Mechanism, you risk penalties and interest charges. A tax officer may disagree with your classification during an audit, leading to a demand for the unpaid tax difference plus interest.
The terms explained
- Reverse Charge Mechanism
- A system where the person receiving the service, rather than the person providing it, is responsible for paying the GST to the government.
- SAC 997337
- A specific service code used by the tax department to categorize licensing services for the right to use minerals.
- Royalty
- A payment made to the government for the right to explore and extract minerals from a leased area.
The ruling in detail
Authority for Advance Ruling
M/s. Ramandeep Upkarsingh Bindra (Black Rock Crusher)
GST-ARA-06/2020-21/B-626, dated 28.11.2025 · Maharashtra
Questions before the authority
- Whether the services of leasing of mines of which royalty is charged by government merits classification under the heading No. 9973 specifically under sub heading no 997337 (licensing services for the right to use minerals including its exploration and evaluation)?
- Whether the said service can be classified under SL No. 17(iii) of notification no 11/2017 central tax (rate) dated 28/06/2017 attracting rate of 5 percent (same rate of central tax as on supply of like goods involving transfer of title goods)?
Facts
The applicant is engaged in mining and quarrying activities and entered into a lease agreement with the State Government for the exploration and extraction of minerals. In consideration for these mining rights, the applicant pays royalty or dead rent to the State Government. The applicant sought a ruling on the correct classification and applicable GST rate for these royalty payments.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification under heading 997337 | Yes, it is part of the consideration for licensing services for the right to use minerals. Taxable at 9% CGST and 9% SGST under Serial No. 17(viii) of Notification No. 11/2017-Central Tax (Rate). |
| Classification under SL No. 17(iii) at 5% rate | Answered in the negative. The service is not a transfer of right to use goods but a licensing service for mineral extraction. |
The Authority ruled that the royalty paid for mining leases is consideration for licensing services for the right to use minerals, classified under SAC 997337. It held that this service is taxable at 18% under the Reverse Charge Mechanism, rejecting the applicant's contention that it should be taxed at 5% under the entry for transfer of right to use goods.
Reasoning
The Authority determined that the mining lease does not involve the transfer of specific tangible goods, but rather the grant of a license to explore and extract natural resources. Consequently, it does not fall under the entry for the transfer of the right to use goods, but rather under the **residual entry 17(viii)** for services under SAC 9973. Relying on the Supreme Court judgment in Mineral Area Development Authority vs. Steel Authority of India Ltd., the Authority concluded that royalty is a **consideration for a taxable supply of service** rather than a tax. Therefore, the service is subject to GST at 18% under the Reverse Charge Mechanism as per Notification No. 13/2017-Central Tax (Rate).
Provisions relied on
- Section 97 of the CGST Act and MGST Act
- Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017
- Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017
- SAC 997337
For the practitioner
This ruling confirms that royalty payments for mining leases are **taxable at 18%** under the Reverse Charge Mechanism. It settles the debate by classifying these payments as licensing services for the right to use minerals rather than a transfer of goods. Practitioners should note that this aligns with the **Supreme Court's recent interpretation** that royalty is a consideration for a service.
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/gst_ara_order_in_case_of_ramandeep_upkarsingh_bindra_1_compressed.pdf
Legibility of the scan, as read: high.
Prepared 14-10-2026.
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