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2019 (4) TMI 1498 - AAR - GSTClassification of service - Mining lease - services of right to use natural resources - GST on Dead rent / Royalty / Surface rent - Notification No. 11/2017Central tax (rate) dated 28.06.2017. HELD THAT - The applicant entered in to a lease transfer agreement dated 19.03.1976 for obtaining mining lease and engaged in the business of mining of Wollastonite, Calcite, Feldspar and Quartz. The said minerals (goods) are classifiable under tariff heading 2506, 2529 and 2530 and are leviable to GST on their supply at the rate of 5%. The Government provides license to various companies including Public Sector Undertakings for exploration of natural resources like oil, hydrocarbons, iron ore, manganese etc. For having assigned the rights to use the natural resources, the licensee companies are required to pay consideration in the form of annual license fee, lease charges, royalty, etc to the Government. The activity of assignment of rights to use natural resources is treated as supply of services and the licensee is required to pay tax on the amount of consideration paid in the form of royalty or any other form under reverse charge mechanism. The mining lease is governed by the Rajasthan Minor Minerals Concession Rules, 2017 (RMMCR). As per provisions of RMMCR, the applicant is required to pay dead rent or royalty (whichever is higher but not both). This activity of payment of dead rent or royalty is a supply of service ( Licensing services for the right to use minerals including its exploration and evaluation ) wherein the government of Rajasthan is supplier and the applicant is recipient. The said service is classifiable under Licensing services for 'the right to use minerals including its exploration and evaluation at Serial No. 257, Heading 9973, Group 99733, sub heading 997337 of annexure Scheme of classification of Services to Notification No. 11/2017-CT (Rate) dated 28.06.2017. Further, the applicant is receiving leasing / licensing services from the government of Rajasthan hence, provisions of reverse charge mechanism are applicable under the Notification No. 13/2017-CT (Rate), dated 28.06.2017 (as amended from time to time) of the CGST Act, 2017.
Issues Involved:
1. Classification of service provided by the State of Rajasthan. 2. Applicability of GST rate on the service. 3. Liability to discharge GST under reverse charge mechanism. Issue-wise Detailed Analysis: 1. Classification of Service Provided by the State of Rajasthan: The applicant, engaged in mining Wollastonite, Calcite, Feldspar, and Quartz, sought clarification on the classification of services provided by the State of Rajasthan for which royalty is paid. The applicant argued that the service should be classified under "Licensing services for the right to use minerals including its exploration and evaluation" (sub-heading 997337) as per Notification No. 11/2017-CT (Rate) dated 28.06.2017. The jurisdictional officer, however, suggested that the service falls under "Licensing services for right to use other natural resources including telecommunication spectrum" (sub-heading 997338). 2. Applicability of GST Rate on the Service: The applicant contended that the rate of GST on the service should be the same as the rate applicable to the minerals being extracted, which is 5%. They based this on the interpretation that the service of granting the right to use minerals should attract the same GST rate as the supply of the minerals themselves. However, the jurisdictional officer argued that the applicable GST rate on the activity is 18% (9% CGST + 9% SGST) as per Notification No. 11/2017 dated 28-06-2017, amended by Notification No. 27/2018 dated 31/12/2018. 3. Liability to Discharge GST under Reverse Charge Mechanism: The applicant sought clarity on who would be liable to discharge GST on the royalty paid to the State Government. The applicant referenced the Ministry’s clarification that royalty payments are subject to GST under the reverse charge mechanism, making the recipient of the service (the applicant) liable to pay the tax. Findings, Analysis & Conclusion: a. Classification of Service: The authority observed that the applicant entered into a lease agreement for mining and is required to pay dead rent or royalty, which is considered a supply of service. The service is classified under "Licensing services for the right to use minerals including its exploration and evaluation" (sub-heading 997337) as per Notification No. 11/2017-CT (Rate) dated 28.06.2017. b. Applicability of GST Rate: The relevant portion of the serial no. 17 for item (viii) of Notification No. 11/2017-CT (Rate), dated 28.06.2017, specifies that leasing or rental services not covered under specific sub-headings attract a GST rate of 18% (9% CGST + 9% SGST). The authority concluded that the service provided by the State of Rajasthan falls under this category. c. Liability to Discharge GST: The authority confirmed that the applicant is receiving leasing/licensing services from the government, and therefore, the provisions of the reverse charge mechanism are applicable. This is in accordance with Notification No. 13/2017-CT (Rate), dated 28.06.2017, which mandates the recipient to discharge the tax liability. Ruling: A. The activity undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services, with or without operator), specifically under sub-heading 997337 (Licensing services for the right to use minerals including its exploration and evaluation). B. The activity attracts 18% GST (9% CGST + 9% SGST), and the applicant is liable to discharge the tax liability under the reverse charge mechanism as per Notification No 13/2017-CT (Rate), dated 28.06.2017.
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