• Upkar Agarwal, Advocate & Ashutosh Mishra, Advocate



“The only difference between death and taxes is that death doesn’t get worse every time the Congress meets”

-Will Rogers

It is quite ironic that while the nation is celebrating the withdrawal of retrospective taxation vis-à-vis indirect transfers under direct tax, some of the retrospective debates in indirect taxes seem far from over. The constant tussle to levy high rate of tax as against a lower rate of tax is a common issue between the revenue and the taxpayers. An argument to pass off an amendment as ‘clarificatory’ or ‘declaratory’ (thus making it retrospective in nature) during such debates definitely adds fuel to this fire.

A mere assertion that an amendment is a clarification (in absence of an expressive declaration to the effect) does not make it conclusive, and consequently whether a change is clarificatory or substantive (and therefore, prospective) is always a matter of statutory interpretation and needs adjudication by the courts[1]. Adjudication can often give rise to divergent viewpoints which eventually result in legal debates regarding statutory interpretations. This article intends to discuss a similar debate that has arisen under the GST regime vis-à-vis the applicable rate of tax on transfer of mining rights.

The transaction and relevant legal provisions

Nature of supply

The transaction-in-issue pertains to the mining sector. Usually, a business operating in this sector needs to obtain a lease for mining of mineral/s from the government in the state of operation. In lieu of such lease, the business is required to pay royalty/ service charges by way of rent (usually called as ‘annual dead rent’) to the concerned State Government for granting of such licence for exploration of natural resources and right to use such minerals.

As per the law, the activity of leasing of a government land to a person is considered as supply.[2] Furthermore, any lease, tenancy, easement, license etc. to occupy land is treated as a supply of service.[3] Consequently, leasing of a government land to carry out the activity of the quarrying, is treated as a supply of service from the government to the business.

Also, the Sectoral FAQ published by the Central Board of Indirect Taxes in reply to Question 30 of ‘Government Services’ treats royalty payment made towards Licensing services for exploration of natural resources as a supply of service. Thus, in such transactions, the government provides the service of licensing services for the right to use minerals after its exploration and evaluation to a business and such applicant pays consideration in the form of rent/ royalty to the government for the same.

Classification of service

Classification of a service is relevant for the purpose of determining the applicable rate of tax on such service. For the purposes of classification of service received by such businesses, Annexure to the Notification No. 11/2017-Central Tax (Rate), dated June 28, 2017 (‘Rate Notification’) is referred to. The Annexure to the Rate Notification defines the Service Accounting Code (‘SAC’) for each type of service. Heading 9973 under the SAC provides for ‘Leasing or rental services with or without operator.’ In particular, sub-heading 9973 37 under the SAC covers ‘Licensing services for the right to use minerals including its exploration and evaluation.’

The rate of tax


Entry No. 17 under the Rate Notification provides the rates of tax of various services falling under Heading 9973. A perusal of this entry shows that the supply in question is not expressly covered under any of the sub-entries (i) to (v). The rate of tax as per residual sub-entry (vi) under Entry No. 17 viz. ‘Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv) and (v) above’ is the ‘same rate of central tax as applicable on supply of like goods involving transfer of title in goods’. The rate of tax of such goods (i.e., minerals in this case) is pre-dominantly in the lower tax bracket (usually 5 percent).


It is pertinent to note that post its implementation, Entry No. 17 of the Rate Notification has undergone numerous amendments till date. Post the latest amendment of the Rate Notification vide Notification No. 27/2018-Central Tax (Rate), dated December 31, 2018 (‘Amendment Notification’), the residual entry (i.e., sub-entry (vi) in the original Rate Notification) became sub-entry (vii) with the applicable rate of tax changed to 18 percent. Apart from the above, there was another new sub-entry (via) viz. ‘Leasing or renting of goods’ with applicable rate of tax as ‘same rate of central tax as applicable on supply of like goods involving transfer of title in goods’ (which was the applicable rate of tax of the residual entry prior to the amendment).

The above amendment was brought in consequence to the discussions of the 31st GST Council Meeting dated December 22, 2018 and made applicable from January 1, 2019. The GST Council essentially bifurcated the residual entry in two parts, one pertaining to goods, and the other pertaining to services. The intention of the GST Council was that there being no underlying goods in intellectual property, the rate of tax of similar goods cannot apply to such intellectual property and similar products. This amendment essentially gave rise to the issue that whether such amendment in tax rates to residual entry (wherein the rate of tax was replaced from rate of tax of similar goods to 18 percent) would be prospective or retrospective in application, i.e., whether rate of tax of services falling under the residual entry would be 18 percent for the period July 1, 2017 (Date of implementation of GST) to December 31, 2018 (date of pre-amended residual entry under Rate Notification) as well?

Divergent views of the Advance Rulings

A plethora of Advance Rulings[4] in similar cases have classified such services under SAC 9973 37 which are subject to levy of GST at a lower rate of tax till December 31, 2018 and thereafter, at 18 percent under Reverse Charge Mechanism (subject to exceptions tax on government services are payable on reverse charge basis) in terms of Entry No. 17 of Rate Notification as amended. These Advance Rulings simply classify the supply of such services under the residual entry (due to absence of another express entry for such services) and accordingly, provide the rate of tax similar to that of goods till December 31, 2018, and at the rate of 18 percent thereafter.

However, a contrary view has emerged in some Advance Rulings as well[5]. The reasoning of such rulings is primarily on the basis of the minutes of the 31st GST Council Meeting which states that the purpose of the amendment is to clarify rate of tax on the residual entry. Furthermore, since the right to use minerals is a licensing service and does not relate to any underlying goods, the pre-amended residual entry cannot be made applicable and thus, the rate of tax would be 18 percent from July 1, 2017, onwards due to the new entry being clarificatory in nature.

Analysis and Conclusion

The principle of ‘lex prospicit non respicit’ states that ‘the Law looks forward and not backward’. Any ambiguity in the tax laws must always be resolved in the favour of a taxpayer as against an imposition of tax.[6] The determination of the nature of a provision as prospective or retrospective requires due attention to the language of the amendment, the legislature’s intent, other supporting documents, and also the hardships caused to the taxpayer.

A piece of legislation is presumed not to be intended to have a retrospective operation unless it is explicitly stated.[7] The use of the term ‘clarity’ or ‘clarify’ does not in itself make the nature of the amendment as clarificatory. In the instant issue, a perusal of the Rate Notification as amended as well as the Amendment Notification clearly shows that in no case does the legislature use a language which infers a retrospective application. In fact, Entry 1(e) in the Amendment Notification substitutes the existing entries altogether. There is no ‘Explanation’ inserted which clarifies the rate of tax.

A retrospective amendment can also be said contrary to the general principle that a legislation introduced for the first time need not change the character of past transactions carried out upon the faith of the then existing law.[8] In arguendo, even if it is assumed that the rate of 18 percent on residual entry was in fact applicable from July 1, 2017 onwards, then effectively it would mean that from the period of July 1, 2017 to December 31, 2018, the rate of tax applicable on such residuary services is on the basis of an entry which never existed in the present place. In absence of such charging entry, how can there be a levy of a new rate of tax?

It is also pertinent to note that usually when the legislature intends to bring a retrospective application, it notifies the date of application of such amendment. In the absence of a particular retrospective date to levy the new rate of tax on the services in the residual entry, the new amendment cannot be said to be clarificatory. In fact, point 2 of the Amendment Notification clearly states that ‘This notification shall come into force on the 1st day of January, 2019.’ Thus, there arises no question of applicability from a retrospective date. The applicability of Amendment Notification should be read as a whole and not particularly to amended Entry No. 17.

Further, the basis of the principle against retrospectivity is the principle of ‘fairness’.[9] When the pre-amended provisions are clear and unambiguous, then in the absence of clear words indicating that an amendment is declaratory, a retrospective effect should not be resorted to. The minutes of the GST Council state that the purpose is to clarify the rate of tax in the residual entry in case of right to use intellectual property and other similar products. However, the fact that there was no clarity on the residual entry can only be said to be because of a legislative error which the law-makers failed to recognize at the time of drafting of the notification. The consequences of such an error cannot be put on a taxpayer at later date by merely stating it as clarificatory in nature.

Any amendment to a taxing statute is intended to remove any hardship caused to taxpayers, and not to the tax department. The Apex Court has many a times provided a clarity on retrospective and prospective operation of tax amendments in this regard as well.[10] Keeping in mind the fact that this interpretative debate is at the Advance Ruling level only, the present issue is far from settled as the higher courts can be expected to play a role to overturn the retrospective application of tax rate in such cases. Additionally, given the intention of the government to implement provisions to promote ease of business in India and efforts being made to put it into effect (such as the recent case of withdrawal of retrospective tax in case of indirect transfers), the taxpayers can expect a positive response from the government on this issue as well. As concluding remarks, the author, in the context of retrospective application of law, would like to state that uncertainty in law, especially tax law, does no good. Uncertainty brings tension and tension really never solved any issue! A clarification on similar issues of retrospective taxation needs immediate attention because if not now, then when?


[1] Union of India v. Martin Lottery (2009) 12 SCC 209. [2] Section 7(1), Central Goods and Services Tax Act, 2017. [3] Entry 2, Schedule II, Central Goods and Services Tax Act, 2017. [4] In Re: Cosme Costa and Sons, 2020 (35) GSTL 590 (AAR-GST-Goa); IN RE : N.M.D.C. Limited, 2020 (32) GSTL 357 (AAR-GST-Karnataka); In Re: Quality Earth Minerals Private Limited, 2019 (3) TMI 1848; In Re : Naren Rocks and Mines Private Limited, 2019 (31) GSTL 122 (AAR-GST). [5] In Re: Rachna Infrastructure Private Limited, 2021 (1) TMI 546, In re: Griiraj Quarry Works, 2020 (41) GSTL 194 (AAR-GST-Gujarat), In Re: Penguin Trading and Agencies Limited, 2020 (32) GSTL 228 (AAAR-GST-Odisha). [6] Billings v. US – 232 U.S. 261, at p.265, 34 S.Ct. 421 [1914]. [7] Govinddas v. Income Tax Officer (1976) 1 SCC 906 and CIT,Bombay v. Scindia Steam Navigation Company Limited (1962) 1 SCR 788. [8] Phillips v. Eyre [1870] LR 6 QB 1. [9] L’Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Company Limited [1994] 1 AC 486 [10] CIT v. Vatika Township Private Limited [TS-573-SC-2014].


Cite this Article: Upkar Agarwal & Ashutosh Mishra, 'Tax Rate on transfer of Mining Rights: Quarrying the retrospective nature' (Tax Terminal Blog, 24 August 2021) <https://www.taxterminal.in/post/tax-rate-on-transfer-of-mining-rights-quarrying-the-retrospective-nature>


CCIT__Ashutosh Mishra
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