2019 (10) TMI 868 - AAR - GST

Liability of GST - Reverse charge mechanism - Whether the Applicant is liable to discharge GST under reverse charge, for the contribution made towards NMET and DMF, in light of SI No. 5 of the Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017? HELD THAT - The Government has provided the land on lease to the applicant to carry out the mining activity and in turn the applicant pays royalty along with the amounts paid to the District Mineral Foundation of the district and to the National Mineral Exploration Trust as specified by the Government. Applicant made these payments under the statutory requirements of the Mines and Minerals (Development and Regulation) Act, 1957 On perusal of the sections related to DMF and NMET, it is seen that both these payments are payable by a lessee in addition to the royalty and both the calculations are made on the basis of royalty - the value of the taxable supply of service not only includes the amount of royalty paid to the Government but it also includes the amount paid to the District Mineral Foundation of the district and to the National Mineral Exploration Trust as these payments are made under the statutory requirements of the Mines and Minerals (Development and Regulation) Act, 1957 which is taxable under GST. Taxes on the payment of royalty - payment made to District Mineral Foundation of the district and to the National Mineral Exploration Trust under reverse charge - HELD THAT - Section 9(3) of the GST Act,2017 says, the Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. Since the Government (Central/state) has provided the land to the applicant on lease to carry out the mining activity , the Government(Central/state) becomes the supplier of the service and the applicant (business entity) is the recipient of the service. Therefore, as per the Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017 applicant is liable pay GST on the payment made to the District Mineral Foundation of the district and payment made to the National Mineral Exploration Trust on reverse charge basis.

Summary

Issues Involved:
1. Liability to discharge GST under reverse charge for contributions made towards NMET and DMF.
2. Applicability of GST on statutory payments made under the Mines and Minerals (Development and Regulation) Act, 1957.

Issue-Wise Detailed Analysis:

1. Liability to Discharge GST under Reverse Charge for Contributions Made Towards NMET and DMF:

The applicant, a manufacturer of iron and steel products, sought a ruling on whether contributions to the National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) are subject to GST under reverse charge, as per SI. No. 5 of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017.

The applicant argued that these contributions should not attract GST under reverse charge. They contended that the payments towards NMET and DMF are statutory contributions made without any specific service being provided in return, thus not qualifying as a "supply" under GST. The applicant highlighted that these contributions are made for regional and detailed exploration and for the benefit of persons and areas affected by mining, respectively.

The applicant referenced Section 9 of the CGST Act, which defines GST as leviable on the supply of goods or services. They argued that the payments to NMET and DMF are not for any service provided by the government but are statutory obligations. They also cited the definition of "consideration" under the Indian Contract Act, 1872, arguing that there is no consideration involved in these payments, thus not constituting a supply under GST.

2. Applicability of GST on Statutory Payments Made Under the Mines and Minerals (Development and Regulation) Act, 1957:

The judgment analyzed whether the statutory payments towards NMET and DMF should be included in the value of the service provided by the government. The applicant receives land on lease from the government for mining activities and pays royalty, along with contributions to NMET and DMF, as required under the Mines and Minerals (Development and Regulation) Act, 1957.

The judgment referenced Section 15(2) of the CGST/KGST Act, 2017, which states that the value of supply shall include any taxes, duties, cesses, fees, and charges levied under any law, if charged separately by the supplier. It concluded that the value of the taxable supply of service includes the royalty paid to the government as well as the contributions to NMET and DMF.

The judgment further examined the reverse charge mechanism under Section 9(3) of the GST Act, 2017, and the relevant notification (No. 13/2017-Central Tax (Rate) dated 28.06.2017). It clarified that the government, by leasing land for mining, provides a service to the applicant, making the government the supplier and the applicant the recipient. Therefore, the applicant is liable to pay GST on the contributions to NMET and DMF under reverse charge.

Conclusion:

The ruling concluded that the applicant is liable to pay GST under reverse charge for the payments made towards NMET and DMF, in accordance with SI. No. 5 of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017. The judgment emphasized that these payments are part of the value of the taxable supply of service provided by the government in leasing land for mining activities.