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2020 (4) TMI 235 - AAR - GSTClassification of service - Leasing service against payment of Royalty - rate of GST - royalty for extraction of iron - payment made to National Mineral Exploration Trust (NMET) Fund, District Mineral Foundation (DMF) Fund and Goa Mineral Ore Permanent Fund Trust (GMOPFT) - levy of GST- rate of GST . Leasing service against payment of Royalty - HELD THAT - Royalty is a charge by the State Government in lieu of consideration of the exploitation and extraction of the mineral resources by the lessee. The payment of royalty is a statutory levy in accordance with the provisions of Mines and Mineral (Development and Regulation) Act, 1957 against licensing services by the Government for right to extract minerals and the same is subject to levy of GST under Reverse Charge Mechanism. Taxability - classification - rate of tax - contribution to the District Mineral Foundation (DMF), National Mineral Exploration Trust (NMET) and Goa Mineral Ore Permanent Fund Trust (GMOPFT) - HELD THAT - The activities/ functions entrusted to the Trust are related to Exploration and Evaluation of Minerals which is duly covered under SAC code No. 997337 which classifies Licensing services for the right to use minerals including its exploration and evaluation - As per Section 9B of the MMDR Act, DMF (District Mineral Foundation) is a trust which is formed by the State Government with an objective to work for the benefits and interest of the persons and areas affected by mining-related operations. Any person who is liable to pay royalty towards the exploration of minerals shall pay a certain percentage of the royalty amount towards DMF. By no stretch of imagination, the contributions paid the said trusts can be treated as donation. In case of failure to contribute to the above trusts, the business/ rights of iron ore extraction would legally get hampered and terminated. Whereas, donations are always of voluntary nature here in the instant case there is a compulsion to make payment to the said trusts in proportion to the amount of royalty and sale proceeds. Thus there hardly remains any doubt that the contributions paid by M/S Cosme Costa to the said trusts are amounts being paid in the course of furtherance of their business activities only - Further, the activities carried out by DMF, NMET and GMOPFT are squarely covered under the clause (i) of the Section 2(17) of the GST Act, 2017 which enumerate any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities in the definition of the business . Liability to pay GST on royalty paid to the Goa Government and amount paid to the Funds - HELD THAT - Section 2(98) of the GST Act, 2017 stipulates that reverse charge means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of Section 5 of the Integrated Goods and Services Tax Act - Further, Reverse Charge Mechanism is applicable for certain notified services as mentioned in the Notification No. 13/2017 -Central Tax (Rate) dated 28.06.2017. As per Sr. No. 5 of the said Notification, ser-vices supplied by the Central Government, State Government, Union Territory or Local Authority to a business entity attracts GST under reverse charge basis. Rate of GST on the supply (Royalty and amount paid to the Funds) the services of Licensing services for the right to use minerals including its exploration and evaluation - HELD THAT - The services are covered under entry No. 17 of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. On careful perusal of the notification it may be seen that the said services are specifically not mentioned in any of descriptions of entry No. 17 and thereby it qualifies to be categorized in the residual clauses/ serial of entry No. 17, wherein it has been specified that the rate applicable for such service should be the same rate as applicable for the supply of like goods involving transfer of title in goods - till 31.12.2018 the rate of GST on the impugned services was applicable at the rate of tax as applicable to like goods involving transfer of title of goods i.e. 5% in the case of iron ore, the goods supplied by the applicant, and the rate of GST stands increased to 18% (CGST 9% SGST 9% ) from 01.01.2019 onwards.
Issues Involved:
1. Classification of "Leasing service" against payment of royalty and the applicable GST rate. 2. GST applicability on payments made to National Mineral Exploration Trust (NMET), District Mineral Foundation (DMF), and Goa Mineral Ore Permanent Fund Trust (GMOPFT) in relation to iron ore extraction. Issue-Wise Detailed Analysis: 1. Classification of "Leasing Service" and Applicable GST Rate: The applicant, M/s. Cosme Costa & Sons, engaged in iron ore extraction, sought an advance ruling on whether the royalty paid for mining lease can be classified under "Licensing services for the right to use minerals including its exploration and evaluation" (SAC 997337) and the applicable GST rate. The judgment clarified that royalty is a statutory payment under Section 9(1) of the Mines and Mineral (Development and Regulation) Act, 1957, for the right to extract minerals. The Central Board of Indirect Taxes and Customs (CBIC) has categorized royalty payments as consideration for licensing services for natural resource exploration, subject to GST under the Reverse Charge Mechanism (RCM). The classification was confirmed under SAC 997337, and the royalty was subject to GST at 5% (2.5% CGST + 2.5% SGST) until 31.12.2018 and 18% (9% CGST + 9% SGST) thereafter. 2. GST Applicability on Payments to NMET, DMF, and GMOPFT: The applicant also sought clarity on whether contributions to NMET, DMF, and GMOPFT are subject to GST and, if so, the applicable rate. a. Contributions to NMET: The applicant argued that payments to NMET are statutory and not a consideration for any supply, hence not subject to GST. However, the judgment found that contributions to NMET are for the right to use minerals, covered under SAC 997337, making them subject to GST. The activities of NMET, such as exploration and evaluation of minerals, align with the classification. b. Contributions to DMF and GMOPFT: Similarly, contributions to DMF and GMOPFT were argued by the applicant as non-business activities and thus not liable for GST. The judgment, however, determined that these contributions are mandatory for mining operations, thus falling under "business" as defined in Section 2(17) of the GST Act, 2017. The activities of DMF and GMOPFT, like NMET, are covered under SAC 997337, making them subject to GST. Classification and Taxability: The judgment confirmed that contributions to NMET, DMF, and GMOPFT are classifiable under SAC 997337 and subject to GST at 5% until 31.12.2018 and 18% thereafter, under the Reverse Charge Mechanism. Conclusion: The ruling concluded that both the royalty payments and contributions to NMET, DMF, and GMOPFT are subject to GST under SAC 997337. The applicable GST rates are 5% until 31.12.2018 and 18% thereafter, with the liability under the Reverse Charge Mechanism. Order: 1. Royalty paid by M/s. Cosme Costa & Sons is classifiable under SAC 997337 and subject to GST at 5% till 31.12.2018 and 18% thereafter under RCM. 2. Contributions to DMF, NMET, and GMOPFT are classifiable under SAC 997337 and subject to GST at 5% till 31.12.2018 and 18% thereafter under RCM.
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