2020 (11) TMI 1086 - AAR - GST

Liability to GST - Royalty amount paid under RCM - whether Royalty amount is also required to be added in the value of supply of Service as per Section 15 for payment of GST, considering the same as part of supply of value? - HELD THAT - In the present case, the mining right so granted for mining of soil is covered under the sub heading 997337 which specifies - 'Licensing services for the right to use minerals including its exploration and evaluation'. It is further seen that this gets covered under entry no. 17 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017, though the aforementioned service is not covered in any of the specifically mentioned descriptions of -entry no 17, resultantly it qualifies being categorized in the residual clause / serial number of entry no 17, wherein it has been specified that the rate applicable for such service should be of same rate as applicable for the supply of like goods involving transfer of title in goods. The service received by the applicant is squarely covered under the Service Accounting Code 997337 -Licensing services for the right to use minerals including its exploration and evaluation. The State Government has been providing the service of licensing services for the right to use minerals after its exploration end evaluation and for this a consideration has to be paid to the Government - Reverse Charge Mechanism is applicable for certain notified services as mentioned in Notification No. 13/2017 - Central Tax (Rate) dated 28.06.2017. As per Sl. No. 5 to the said Notification, services supplied by the Central Government, State Government, Union territory or local authority to a business entity attracts GST, under reverse charge basis by the recipient of such services. The applicability thereof of GST rate for the aforementioned service is to be based on the classification of service. In the instant case as the applicant is admittedly availing mining rights including it exploration and evaluation of soil used in earthwork on payment of a consideration to the Government of Chhattisgarh applicable with effect from 1.4.2018 GST is payable on reverse charge basis by the applicant on the consideration so paid to the Government, at the rate of supply of like goods being mined, on account of availing the said mining rights. Accordingly we come to the considered conclusion that the services for the right to use minerals including its exploration and evaluation, as per the Notification No. 11/2017-CT (Rate), dated 28.06.2017 as amended is included in sub heading 997337, attracting GST rate @18%. Inclusivity of Royalty amount in the value of supply of Service as per Section 15 for payment of GST - HELD THAT - As clause (2) to Section 15 of the Act provides that the value of supply shall include any tax, duties, cesses, fees and charges levied under any law other than GST Act, the royalty amount so paid by the applicant is includible while arriving at the transaction value for payment of applicable GST on the supply of the aforesaid services /activity rendered by the applicant to the main contractor.

Issues Involved:
1. Liability to GST on Royalty amount paid under Reverse Charge Mechanism (RCM).
2. Inclusion of Royalty amount in the value of supply of service as per Section 15 of the CGST Act, 2017 for payment of GST.

Detailed Analysis:

Issue 1: Liability to GST on Royalty Amount Paid Under RCM
The applicant sought an advance ruling on whether GST is required to be paid on the royalty amount under the Reverse Charge Mechanism (RCM). The applicant, a subcontractor, paid the royalty to the State Government for soil used in earthwork, with the payment made in the name of the main contractor. The mining right granted for soil mining is classified under sub-heading 997337, which specifies 'Licensing services for the right to use minerals including its exploration and evaluation'. This classification falls under entry no. 17 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017, attracting the same rate as applicable for the supply of like goods involving transfer of title in goods.

As per Section 2(9B) and Section 2(98) of the CGST Act, 2017, the liability to pay tax under RCM is on the recipient of goods/services. Notification No. 13/2017 - Central Tax (Rate) dated 28.06.2017 specifies that services supplied by the Central Government, State Government, Union territory, or local authority to a business entity attract GST under RCM. The applicant, as the recipient of the mining rights, is liable to pay GST at the rate applicable for the supply of like goods being mined, which is 18% (9% CGST + 9% SGST).

Issue 2: Inclusion of Royalty Amount in the Value of Supply of Service
The second issue was whether the royalty amount should be included in the value of supply of service as per Section 15 of the CGST Act, 2017, for payment of GST. Section 15(2) specifies that the value of supply shall include any taxes, duties, cesses, fees, and charges levied under any law other than the GST Act if charged separately by the supplier. The royalty paid by the applicant is considered a fee levied under the Chhattisgarh Mining Act and is thus includible in the value of supply.

Section 15(1) defines the value of a supply of goods or services as the transaction value, which is the price actually paid or payable for the supply. Section 15(2)(a) further includes any taxes, duties, cesses, fees, and charges levied under any law other than the GST Act in the value of supply. Therefore, the royalty amount paid by the applicant must be added to the transaction value for calculating the applicable GST on the services rendered to the main contractor.

Conclusion:
1. GST on Royalty under RCM: The applicant is liable to pay GST on the royalty amount under the Reverse Charge Mechanism at the rate of 18% (9% CGST + 9% SGST).
2. Inclusion of Royalty in Value of Supply: The royalty amount is includible in the value of supply of services as per Section 15 of the CGST Act, 2017, for payment of applicable GST on the services rendered by the applicant to the main contractor.

Order:
The ruling provided by the Authority for Advance Ruling, Chhattisgarh, is as follows:
1. GST at the applicable rate is payable by the applicant on the royalty amount under Reverse Charge Mechanism.
2. The royalty amount is includible in the transaction value for payment of applicable GST on the supply of services rendered by the applicant to the main contractor, as stipulated under Section 15 of the CGST Act, 2017.

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