MiningMinerals & Ores

GST on Mining & Minerals — Ores 5%, Coal 5%+Cess, Services 18%

Complete GST guide for mining sector: coal with compensation cess, metallic ores (5%), non-metallic minerals, royalty under RCM (18%), contract mining services, petroleum exclusion, and the inverted duty challenge for mining companies.

GST rates were revised in September 2025, and the rates on this page have not yet been checked by a tax professional against that revision. Confirm the current rate in the CBIC rate notifications before you invoice.

5%+Cess

Coal & Lignite

Iron Ore

Limestone

12%

Granite/Marble

Sand & Gravel

18%

Mining Services

18% (RCM)

Royalty on Minerals

Outside GST

Petroleum/Natural Gas

Mining & Minerals — GST Framework

Coal — GST + Compensation Cess

Coal, briquettes, lignite, peat: 5% GST + Compensation Cess (₹400/tonne). Total effective burden: 5% + ₹400 per tonne (specific cess, not ad valorem). Pre-GST: coal faced 6% excise + 2% CST + state VAT (5-6%) + entry tax = ~20%+ total. Post-GST: significantly lower at ~11-12% effective. Washery rejects (middlings): 5% GST. Coke (derived from coal): 18% GST. Coal bed methane: outside GST (petroleum product). Key: Mining companies pay 18% on services but collect only 5% on coal — inverted duty issue (ITC refund available).

Metallic Ores — Iron, Copper, Bauxite

Iron ore (all grades): 5% GST (HSN 2601). Iron ore concentrate/pellets: 5%. Manganese ore: 5%. Copper ore: 5%. Bauxite (aluminium ore): 5%. Chromite ore: 5%. Zinc ore: 5%. Lead ore: 5%. Tin ore: 5%. Uranium/thorium ores: 5%. Gold ore: 3% (same as gold — processed). The low 5% rate on ores was intentional — to keep raw material costs low for manufacturing (steel, aluminium, copper products). Smelting/processing these ores into metal: 18% on processing services. Metal output (steel, aluminium): 18%.

Non-Metallic Minerals & Stone

Limestone: 5% (crucial for cement — cement itself 28%+cess). Granite blocks: 12%. Marble blocks: 12%. Slate: 5%. Sandstone: 5%. Quartz/silica: 5%. Gypsum: 5%. Mica: 5%. Feldspar: 5%. Kaolin (china clay): 5%. Natural sand: 5%. Stone aggregate/crushed stone: 5%. Dimension stone (cut/polished granite/marble): 28% (finished product). The progression: raw mineral (5%) → processed/cut (12%) → finished/polished (18-28%) demonstrates value-addition based taxation. Cement raw material (limestone+gypsum): 5%, but cement: 28% — huge value jump.

Royalty & Mining Lease — RCM (Reverse Charge)

Mining royalty paid to state government: 18% GST under RCM (Reverse Charge Mechanism). The mining company PAYS GST on behalf of government (who is exempt from collecting). This was a landmark SC judgment issue — whether royalty is 'tax' or 'consideration for service'. GST Council clarified: royalty/license fees paid to government for mineral concession = supply of service by government → RCM applies. Dead rent: 18% RCM. District Mineral Foundation (DMF) contribution: debated — many argue it's statutory levy (not service). NMET contribution: similar debate.

Mining Services & Contract Mining

Mining services (contract mining, drilling, blasting, extraction): 18% GST. Overburden removal: 18%. Mine development services: 18%. Mineral exploration (geological survey): 18%. Mine safety consulting: 18%. Ore beneficiation services: 18%. Coal washery services: 18%. Transport of minerals (within mine to pit-head): 18% (GTA if by road — 5% without ITC or 12% with ITC). Conveyor belt transport: 18%. This 18% on services vs 5% on output ore creates inverted duty — mining companies accumulate ITC.

Petroleum & Natural Gas — Outside GST

Five petroleum products are OUTSIDE GST: crude oil, natural gas, petrol (MS), diesel (HSD), ATF. These face: Central Excise + State VAT (varying). Natural gas: excise + VAT (varies 5-20% by state). LPG (domestic): 5% GST (within GST). LPG (industrial): 18% GST. Kerosene (PDS): exempt. Kerosene (non-PDS): 18%. Naphtha: 18%. Bitumen: 18%. Petroleum coke: 18%. Lubricants: 18%. The exclusion of petroleum from GST is the BIGGEST gap in the GST architecture — distorts input costs for mining, transport, manufacturing across ALL sectors.

Mining & Minerals — GST Rate Table

Item	HSN	GST Rate	Notes
Coal, briquettes, lignite	2701-2704	5% + ₹400/T cess	Compensation cess
Iron ore (all grades)	2601	5%	Including concentrate
Copper/bauxite/manganese ore	2603-2606	5%	Raw ores
Limestone	2521	5%	Cement raw material
Granite/marble blocks	2515-2516	12%	Unprocessed blocks
Natural sand	2505	5%	Construction sand
Gold ore	2616	3%	Same as gold rate
Mineral royalty (RCM)	SAC 9973	18%	Reverse charge
Contract mining services	SAC 9986	18%	Drilling, extraction
Coke (coal derived)	2704	18%	Processed
Polished granite/marble	6802	28%	Finished product
Cement	2523	28%	End product from limestone

Frequently Asked Questions

How does GST on coal compensation cess work and who bears it?

Coal attracts dual levy: 5% GST (ad valorem on transaction value) + ₹400 per tonne Compensation Cess (specific rate — fixed per tonne, not percentage). Example: Coal priced at ₹4,000/tonne → GST = ₹200 (5%) + Cess = ₹400 = Total ₹600 tax per tonne. The cess was introduced to compensate states for revenue loss during GST transition (GST Compensation Cess Act, 2017). Originally for 5 years (2017-2022), extended to March 2026 for loan repayment. Key: Compensation cess is NOT creditable — coal buyers (power plants, steel plants, cement plants) CANNOT claim ITC on the ₹400/tonne cess, making it a cost. Only the 5% GST portion is eligible for ITC.

Is royalty paid to state government subject to GST?

Yes — 18% GST under Reverse Charge Mechanism (RCM). The mining lessee pays GST on royalty amount as if they received a 'service' from the government (granting right to extract minerals). Legal basis: Entry 5 of Notification 13/2017-CT(R) — services by government to business entity. Example: Royalty of ₹100/tonne × 1000 tonnes = ₹1,00,000. GST under RCM = ₹18,000 (18%). The mining company pays this ₹18,000, files in GSTR-3B, and can claim ITC on it (if output is taxable). Controversy: Many argued royalty is 'tax on tax' — but Supreme Court in Mineral Area Development Authority case (2024) held royalty is NOT a tax, clearing the way for GST on royalty to continue.

Why is the mining sector facing inverted duty structure?

Mining companies pay 18% GST on input services (contract mining, drilling, blasting, transport, equipment rental, consulting) but collect only 5% on output (ore/mineral sales). This creates ITC accumulation — more tax paid on inputs than collected on output. Example: Iron ore miner — Input GST (services): ₹18 lakh/month. Output GST (ore sales at 5%): ₹8 lakh/month. Monthly ITC buildup: ₹10 lakh. Over a year: ₹1.2 Cr stuck. Refund route: Available under Section 54(3) — inverted duty refund. But formula excludes input services (only input goods qualify). So the actual refund is limited to goods-related ITC inversion only. Services ITC inversion remains blocked — a major liquidity issue for mining companies.

What is the GST on sand and construction aggregates?

Natural sand: 5% GST (HSN 2505). M-sand (manufactured sand): 5% (HSN 2505). Stone aggregate/crushed stone (gitti): 5% (HSN 2517). Gravel: 5%. Boulder: 5%. These are critical construction inputs — the low rate was intentional to control housing/infrastructure costs. However: Mining/quarrying SERVICE to extract sand: 18% (service rate). Royalty on sand extraction: 18% (RCM). Transport of sand: 5% (GTA) or 18% (own transport). So while the GOODS rate is 5%, the total cost including extraction and transport services adds effective burden. Many states also charge separate river sand mining cess (outside GST). Ready-mix concrete (using sand+aggregate+cement): 28% → clearly shows value-chain escalation.

Mining Invoicing — Royalty RCM & Cess Calculation

Laabam.One handles coal compensation cess (specific rate per tonne), royalty reverse charge, mining service invoicing at 18%, and inverted duty refund computation for ore producers.

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