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.

5%+Cess

Coal & Lignite

5%

Iron Ore

5%

Limestone

12%

Granite/Marble

5%

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

ItemHSNGST RateNotes
Coal, briquettes, lignite2701-27045% + ₹400/T cessCompensation cess
Iron ore (all grades)26015%Including concentrate
Copper/bauxite/manganese ore2603-26065%Raw ores
Limestone25215%Cement raw material
Granite/marble blocks2515-251612%Unprocessed blocks
Natural sand25055%Construction sand
Gold ore26163%Same as gold rate
Mineral royalty (RCM)SAC 997318%Reverse charge
Contract mining servicesSAC 998618%Drilling, extraction
Coke (coal derived)270418%Processed
Polished granite/marble680228%Finished product
Cement252328%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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