2021 (8) TMI 578 - AAR - GST

Valuation of supply - mining services - Contributions to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR) read with National Mineral Exploration Trust Rules, 2015 ( NMETR ) and Mines and Minerals (Contribution to District Mineral Foundation) Rules, 2015 - inclusion of consideration towards supply of mining service by Andhra Pradesh Government or not - Reverse Charge Mechanism - HELD THAT - Contribution to National Mineral Exploration Trust (NMET) forms part of the Consolidated Fund of India. The applicant contends that the NMET collections by the Mining Department are not proceeds from business since there is no supply by the Government, but revenues collected by the Government of India. Hence, the question of Levy of GST does not arise. Contribution to District Mineral Foundation (DMF) is nothing but payment of tax and not a consideration towards supply. The applicant submits that contribution to the DMF is not consideration towards supply of services but a statutory levy of taxes - Contribution to District Mineral Foundation (DMF) is paid to the non -profit trust (DMF Trust) established by the State Government and not to the State Government even if it is assumed that DMF contribution is a consideration towards supply, the applicant submits that the DMF Trust and the State Government are two different persons. The payment of tax under Para 5 of Notification 13/2017 dated 28th June 2017 on RCM basis is not applicable to the DMF Trust. Hence, the applicant being recipient of service from DMF Trust is not liable to pay the GST on RCM basis. The levy if at all applicable is on forward charge and shall be liable to be paid by the supplier of service i.e. DMF Trust. DMF Trust is not local authority within the scope of Section 2 (69) of the GST Law. Royalty is only a measure of NMET and DMF contributions and cannot be equated with NMET and DMF and that NMET and DMF are not in respect of single supply of service i.e. licensing that warrants clubbing of all amounts i.e. Royalty, NMET and DMF under Section 15 of the GST law for the purpose of valuation - There is no correlation between the Royalty payments and the NMET and DMF except for measurement of NMET and DMF which is based on Royalty. The charges levied under MMDR Act are meant to be the charges levied under any law other than the GST Act. Thus, the payments made to DMF and NMET are very well includible under the value of supply in addition to the royalties paid and can be called a total consideration received for granting mining and leasing rights - The service provided is only the license to extract mineral ore and also the right to use such minerals extracted is a single service where the consideration is payable under three heads and in case any one of the payments is not made, the service provider, that is the Government would not issue the permit to use the mineral ore so extracted. Hence it forms the value of the supply under Section 15 and the charges for DMF and NMET being compulsory payments, would only amount to application of the amounts paid and still would form the value of the taxable services. The service is a single service there are no separate service providers for royalty, DMF and NMET and in all cases the Government which has provided the license to mine mineral ore and permitted the use of such mineral ore mined would be the person who has provided the service - As per Entry No. 5 of Notification No. 13/2017-Central Tax (rate), GST on services supplied by Central Government State Government or Local Authority, to a business entity needs to be paid by such business entity under RCM.

Summary

Issues Involved:
1. Whether contributions to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) qualify as consideration towards the supply of mining service.
2. Whether these contributions are included for the purpose of value of supply chargeable to GST under the Reverse Charge Mechanism (RCM) in the hands of the applicant service recipient.

Detailed Analysis:

1. Contributions to NMET and DMF as Consideration for Supply of Mining Service:

The applicant, a mining lease holder, is mandated to contribute to NMET and DMF under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act). The applicant argued that these contributions are statutory obligations and not consideration for any supply of service by the Government. They contended that these payments are akin to taxes and not fees for services, emphasizing that NMET contributions go into the Consolidated Fund of India, indicating their nature as tax rather than business proceeds. They also referenced the Supreme Court's decision in Federation of Indian Mineral vs. Union of India, which treated DMF contributions as a form of tax.

However, the authority found that under Section 7 of the CGST Act, 2017, GST is applicable on any supply made for consideration in the course or furtherance of business. The activities undertaken by NMET and DMF could be treated as a vocation, thus satisfying the definition of business. The authority concluded that these contributions are part of the total consideration for granting mining and leasing rights and thus qualify as consideration for the supply of mining services.

2. Inclusion of NMET and DMF Contributions in Value of Supply Chargeable to GST under RCM:

The applicant argued that NMET and DMF contributions should not be included in the value of supply for GST purposes, as they are separate from the royalty payments and serve different purposes. They contended that these contributions are not related to a single supply of service and should not be clubbed with royalty payments under Section 15 of the GST law.

The authority disagreed, stating that the service provided is a single service—the license to extract and use mineral ore. The consideration for this service is payable under three heads: royalty, NMET, and DMF. If any of these payments are not made, the Government would not issue the permit to use the extracted mineral ore. Therefore, all these payments form the value of the supply under Section 15 of the CGST Act. The authority emphasized that the charges for DMF and NMET are compulsory payments and thus form part of the taxable value of the service.

Conclusion:

The authority ruled that contributions to NMET and DMF qualify as consideration towards the supply of mining service by the Andhra Pradesh Government. These contributions are includible under the value of supply and are chargeable to GST under the Reverse Charge Mechanism in the hands of the applicant, i.e., the service recipient.

Ruling:

The contributions to NMET and DMF are considered as part of the value of supply for mining services provided by the Andhra Pradesh Government and are chargeable to GST under the Reverse Charge Mechanism.