Before we indulge in the issue of taxability of royalty paid on mining operations, it is essential to first discuss the moot question whether royalty itself is in the nature of tax. This question fundamentally exerts influence on tax implications, which has been at stretch from a long time now as there cannot be levy of tax on tax which cannot be attached to the value of the goods/services. Although various judicial decisions to all intents and purposes explored the matter’s clear position in law, yet its tax implication still remains unclear with the taxpayers and the tax levying authority. The Supreme Court in India Cement Ltd. vs. State of Tamil Nadu case has held that royalty is not a tax and its payment is for the user of the land. Royalty on mineral rights is not a tax on land but a payment for the user of land. Although the intent and the missive were clear as set out in the judgement determining that royalty is a “tax” though not a “tax on land” as this was the question before them that whether Royalty is tax on land.
Source: Mondaq
