Natural Resources, Royalty and the Government Exemption Entries

Natural Resources explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

The starting point is uncomfortable for anyone holding a mining lease or a spectrum licence: granting rights over natural resources is trade, not sovereignty, and it is taxable. Six entries then carve out specific cases.

Services by Government by way of grant of privileges, licences, mining rights and natural resources such as spectrum, against fee or royalty, are taxable, with the business entity paying under reverse charge — Circular No. 121/40/2019-GST. The carve-outs: entry 42 (telecom licence or spectrum before 01.04.2016), entry 47 (statutory registration and safety testing or certification), entry 61A (national permit to a goods carriage), entry 62 (contractual fines and liquidated damages), entry 63 (natural resources to an individual farmer), entry 64 (rights assigned before 01.04.2016), and entry 65B (the Excess Royalty Collection Contractor arrangement).

The rule before the exceptions

Article 298 permits the State to engage in trade or commerce, and the Handbook's proposition follows: "stock-in-trade of the State are the natural resources of the Nation which are employed gainfully by State Enterprises or licensed to Private Enterprise. Therefore, State does not engage exclusively in Sovereign functions."

And the CBIC has stated the consequence for this class expressly: "services provided by the Government to business entities including by way of grant of privileges, licences, mining rights, natural resources such as spectrum etc. against payment of consideration in the form of fee, royalty etc. is taxable under GST" — payable by the business entity under reverse charge, per Circular No. 121/40/2019-GST dated 11.10.2019.

Do not read the liquor licence notification across. The Handbook is explicit that Notification No. 25/2019-CT(R), which makes the grant of an alcoholic liquor licence a non-supply, is "applicable only to… grant of liquor licenses by the State Governments as an agreement between the Centre and States" and "has no precedence value in relation to grant of other licenses and privileges for a fee." Section 7(2)(b) and Schedule III →

Entry 64 — assignments made before 1 April 2016

Exempt: services by the Central Government, State Government, Union territory or local authority by way of assignment of the right to use any natural resource where such right to use was assigned before the 1st April, 2016 —

"Provided that the exemption shall apply only to tax payable on one time charge payable, in full upfront or in instalments, for assignment of right to use such natural resource."

Two limits. The date of assignment governs, not the date of payment; and only the one-time charge is exempt. Recurring royalty or periodic charges on a pre-2016 assignment are not covered.

Entry 42 does the same for telecom. Services by way of allowing a business entity to operate as a telecom service provider or use radio frequency spectrum during the period prior to 1 April 2016, on payment of licence fee or spectrum user charges.

Both entries mark the same cut-off, which is when the service tax net was extended to assignments of natural resources.

Entry 63 — the individual farmer

Exempt: assignment of the right to use natural resources to an individual farmer for cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products.

Three limits. The recipient must be an individual farmer — not a company, firm or co-operative. The purpose must be cultivation or rearing. And horses are expressly out.

Entry 65B — the Excess Royalty Collection Contractor

This is the most conditional entry in the set, and the condition is a reconciliation.

Exempt: services supplied by a State Government to an Excess Royalty Collection Contractor (ERCC) by way of assigning the right to collect royalty on behalf of the State Government on the mineral dispatched by mining lease holders.

"Mining lease holder" means a person granted a mining lease, quarry lease, licence or other mineral concession under the Mines and Minerals (Development and Regulation) Act, 1957, the rules thereunder, or State rules under section 15(1) of that Act.

The condition: at the end of the contract period the ERCC must submit an account to the State Government and certify that the GST deposited by mining lease holders on royalty exceeds the GST exempted on the State's service to the ERCC. "Where such amount of GST paid by mining lease holders is less than the amount of GST exempted, the exemption shall be restricted to such amount as is equal to the amount of GST paid by the mining lease holders, and the ERCC shall pay the difference."

The design is a revenue-neutrality guarantee. The State's supply to the ERCC is exempt only to the extent that tax has actually been collected downstream from the lease holders. The ERCC bears the shortfall.

Entry 47 — registration, testing and certification

Exempt: services by the Central Government, State Government, Union territory or local authority by way of —

• (a) registration required under any law for the time being in force;
• (b) testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, including fire licence, required under any law.

Both limbs need a statutory requirement. A voluntary certification or an optional registration is outside the entry.

And a clarification on its edge. Circular No. 100/19/2019-GST dated 30.04.2019 holds that "charges collected for composite supply of seed testing and certification are exempt and such exemption shall apply to supply of seed tags by seed testing and certification agencies."

But not further: "State Governments / Seed Certification Agencies may also get tags used in seed certification printed from other departments / manufacturers outside. In such cases, exemption shall not be applicable." The tag rides on the certification service; a separately procured printed tag does not.

Entries 61A, 62 and 65 — three smaller carve-outs

Entry 61A — services by way of granting a National Permit to a goods carriage to operate throughout India or in contiguous States.

Entry 62 — services by Government by way of tolerating non-performance of a contract, for which consideration in the form of fines or liquidated damages is payable to Government under such contract.

Read entry 62 against Circular No. 178/10/2022-GST. A statutory fine is not a supply at all, because "laws are not framed for tolerating their violation". A contractual liquidated damage is a supply — of tolerating an act — and entry 62 exempts it where the recipient of the money is Government. Different provisions, different reasons, same practical outcome of no tax.

Entry 65 — services by the Central Government, State Government or Union territory by way of deputing officers after office hours or on holidays for inspection, container stuffing or other duties in relation to import-export cargo, on payment of merchant overtime charges.

And one entry that is not about resources at all

Entry 34A — services supplied by the Central Government, State Government or Union territory to their undertakings or Public Sector Undertakings by way of guaranteeing the loans taken by them from banking companies and financial institutions.

Confirmed after examination. The issue went to the 43rd GST Council meeting on 28.05.2021, and Circular No. 154/10/2021-GST dated 17.06.2021 "re-iterated that guaranteeing of loans by Central or State Government for their undertaking or PSU is specifically exempt under said entry No. 34A."

Note the boundary. The exemption covers a Government guarantee to its own undertaking or PSU. A guarantee by a Government to a private borrower, or a corporate guarantee between group companies, is a different transaction on different provisions.

Key takeaways

• Grant of mining rights, spectrum, privileges and licences for fee or royalty is taxable, under reverse charge — Circular No. 121/40/2019.
• The alcoholic liquor licence non-supply has no precedent value for other licences.
• Entry 64 exempts assignments made before 01.04.2016, and only the one-time charge; entry 42 does the same for telecom and spectrum.
• Entry 63 exempts assignments to an individual farmer, excluding horses.
• Entry 65B exempts the ERCC arrangement, but only up to the GST actually paid by mining lease holders; the ERCC pays any shortfall.
• Entry 47 requires the registration, testing or certification to be required by law; seed tags ride on the certification, but externally printed tags do not.
• Entry 62 exempts contractual fines and liquidated damages to Government; statutory penalties are outside supply altogether.
• Entry 34A exempts a Government guarantee to its own undertaking or PSU — Circular No. 154/10/2021.

Read next

• Entry 6 and Its Four Exclusions: Services by Government
• Section 7(2)(b) and Schedule III: What Government Does That Is Not a Supply
• RCM Entry 5: Government Services to a Business Entity

Disclaimer: Positions stated as on 5 September 2026, based on entries 34A, 42, 47, 61A, 62, 63, 64, 65 and 65B of Notification No. 12/2017-Central Tax (Rate), Notification No. 25/2019-Central Tax (Rate), the Mines and Minerals (Development and Regulation) Act, 1957, and Circulars No. 100/19/2019-GST, 121/40/2019-GST, 154/10/2021-GST and 178/10/2022-GST, as reproduced in the ICAI Handbook on Government Supplies under GST (Including TDS Provisions), updated to 15 April 2026.