2022 (5) TMI 342 - AAR - GST

Classification of supply - supply of goods or supply of services - HSN Code - Classifiable under HSN 2701 or under HSN 9986? - rate of GST - right and ownership on the Coal mined by the Applicant - single consolidated contract or a divisible contract in view of the fact that four components of the contract (viz. Excavation of Coal Transport Service Handling Charges (incl. Additional Handling Charges) and Restoration and Rehabilitation charge are clearly distinguishable and separately identifiable? - other components like Royalty MMDR DMF Fund Cess Stowing Excise Duty Reserve Price etc. which are levied on the coal excavated from the Mine. Whether the impugned activity carried out by the Applicant under the subject Agreement is supply of Goods or is a supply of Service and whether the said activity should accordingly be subject to GST under HSN 2701 (chargeable @ 5% as supply of coal) or under HSN 9986 (chargeable @ 18% as Support Services to Mining)? - HELD THAT - The coal as goods belongs to the Mine Owner i.e. the Government of India and the Government of India has allotted the Mines to Karnataka Power Corporation Limited (KPCL) for mining of coal to be used only for captive purpose in generation of power by the KPCL. The fact that the KPCL has been given the authority as the owner of the Mines is reflected in Article 5.7.1 of the impugned Agreement which states that Subject to the provisions of this Agreement the Authority (i.e. KPCL) shall be the Owner of the Mines for the purposes of the Mines Act 1952. Thus the said Article of the Agreement clearly proves that the owner of the coal is KPCL and not the applicant. Therefore there is no supply of coal by the applicant purely because the applicant neither has any ownership rights on the coal nor has any rights to sell the coal that has been excavated by it. Hence the applicant is involved in supply of services in the instant case (as seen from the Scope of Supply in the Agreement) and there is no supply of coal by the applicant - thus the impugned activity carried out by the applicant is supply of services and not supply of goods. Under which Service Accounting Code (SAC) does the impugned supply fall under? - HELD THAT - The impugned services related to mining (mining of coal) was covered under Sr No 24 (ii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 - In view of the amendment made to Sr. No. 24 (ii) and since the impugned services cannot be considered as Service of exploration mining or drilling of petroleum crude or natural gas or both the impugned service is not covered under Sr. No. 24 (ii) of the amended Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 - the impugned services related to mining of coal is covered under Sr. No. 24 (iii) with effect from the date of the amendment i.e. 25.01.2018 attracting 18% GST. Whether the Applicant required to consider other components like Royalty MMDR DMF Fund Cess Stowing Excise Duty Reserve Price etc. (which are levied on the coal excavated from the Mine and is payable/paid directly by KPCL to the Government of India and the State Government of Maharashtra and which the Applicant neither has any liability to pay nor does it makes any payment of such amount) for the purpose of determining the transaction price? - HELD THAT - Even though the amounts towards Royalty MMDR DMF Fund and Reserve Price are shown in the invoices as directed by KPCL these amounts are not paid to the applicant. We also observe that these amounts are due from KPCL to the concerned Governmental Authority and are accordingly paid by KPCL to the Department of Geology Mining. Further Article 6.1.3 of the impugned Agreement clearly states that KPCL shall pay at all times during the subsistence of the impugned Agreement all Taxes and levies duties Royalties including demands if any cesses and all other statutory charges payable in respect of excavation and delivery thereof directly to the Governmental Instrumentality. The applicant does not show any liability on account of any of the aforesaid Government Payments (Royalty MMDR DMF Fund and Reserve Price) in its books. As per Article 5.6 of the Agreement the applicant shall pay all GST and cess payable in respect of supply of goods (or) services under the impugned Agreement directly to the Government instrumentality and which shall be reimbursed by KPCL to the applicant - from a reading of Articles 6.1.3 and 5.6 of the Agreement it is crystal clear that GST is payable by KPCL to the applicant while all other taxes are payable and paid by the KPCL to the concerned Governmental Authority. In the subject case it is found that the applicant (supplier of service) and KPCL (recipient of service) are not related persons and price is the sole consideration for the supply - there is no amount that the supplier i.e the applicant is liable to pay in relation to the impugned supply which has been incurred by the recipient i.e. KPCL of the supply and not included in the price actually paid or payable for the services - none of the provisions of Section 15 are attracted in the subject case with respect to amounts towards Royalty MMDR DMF Fund and Reserve Price payable and paid by KPCL directly to the concerned Governmental Authority of Maharashtra and therefore the said amounts are not includible in the Value of Supply for the purpose of levy of GST. A perusal of the impugned agreement (relevant Articles discussed above) reveals that the components like Royalty MMDR DMF fund Cess Reserve Price are not at all liable to be paid by the supplier of service in this case the applicant and further the said components are liable to be paid exclusively by KPCL who is the recipient of the impugned supply. Thus KPCL is incurring the expenses towards the said components on its own behalf and not on behalf of the applicant as is seen from the relevant clauses of the impugned agreement. The amounts towards Royalty MMDR DMF Fund and Reserve Price payable and paid by KPCL directly to the concerned Governmental Authority of Maharashtra are not includible in the Value of Supply for the purpose of levy of GST. However in future if it is agreed between the applicant and KPCL to make payable and pay the amounts towards Royalty MMDR DMF Fund and Reserve Price by KPCL to the applicant in such a case the amounts will be included in the Value of Supply of the impugned services and will be taxed at 18% GST.

Summary

Issues Involved:
1. Whether the activity carried out by the Applicant under the Agreement is a supply of Goods or a supply of Service and the applicable GST rate.
2. Whether the Applicant should raise an invoice under MGST/CGST or IGST considering the entire activity takes place in Maharashtra.
3. Whether the contract can be treated as a single consolidated contract or a divisible contract with different GST treatments.
4. Whether amounts like Royalty, MMDR, DMF Fund, Cess, Stowing Excise Duty, Reserve Price, etc., which are payable directly by KPCL to the Government, should be considered for determining the transaction price.

Detailed Analysis:

Issue 1: Supply of Goods or Services and Applicable GST Rate

5.5 The applicant sought clarity on whether their activities under the agreement with KPCL constitute a supply of goods or services and the applicable GST rate. The authority examined the agreement and found that the applicant is responsible for developing, operating, and maintaining the mines, excavating coal, and delivering it to KPCL. The coal belongs to KPCL, and the applicant has no ownership rights over it. Therefore, the applicant's activities constitute a supply of services, not goods.

5.5.5 The relevant GST rate for these services falls under Heading 9986 as "Support services to mining," attracting an 18% GST rate as per Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, amended by Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018.

5.5.7 The authority concluded that the impugned services related to mining of coal are covered under Sr. No. 24 (iii) with effect from 25.01.2018, attracting 18% GST.

Issue 2: Invoice under MGST/CGST or IGST

4.1 During the preliminary hearing, the applicant withdrew Question No. 2, which sought clarity on whether the applicant should raise an invoice under MGST/CGST or IGST.

Issue 3: Single Consolidated Contract or Divisible Contract

4.1 Similarly, the applicant withdrew Question No. 3, which sought clarity on whether the contract should be treated as a single consolidated contract or a divisible contract with different GST treatments for each component.

Issue 4: Consideration of Amounts like Royalty, MMDR, DMF Fund, Cess, etc., for Transaction Price

5.6 The applicant sought clarity on whether amounts like Royalty, MMDR, DMF Fund, Cess, Stowing Excise Duty, Reserve Price, etc., which are payable directly by KPCL to the Government, should be considered for determining the transaction price.

5.6.1 The authority observed that these amounts are shown in the invoices as directed by KPCL but are not paid to the applicant. These amounts are due from KPCL to the Government and are paid directly by KPCL. Article 6.1.3 of the agreement specifies that KPCL shall pay all taxes and levies directly to the Government.

5.6.3 The authority noted that GST is payable by KPCL to the applicant, while all other taxes are payable by KPCL to the Government. Therefore, these amounts are not includible in the transaction value for GST purposes.

5.6.6 The provisions of Section 15 of the CGST Act, 2017, were examined. The value of supply includes all taxes, duties, cesses, fees, and charges levied under any law, except those specifically excluded. Since the amounts towards Royalty, MMDR, DMF Fund, and Reserve Price are payable by KPCL directly to the Government and not to the applicant, they are not includible in the value of supply.

5.7.2 The jurisdictional officer's submission that these amounts should be included in the value of supply was rejected. The authority clarified that KPCL incurs these expenses on its own behalf and not on behalf of the applicant.

5.8 The authority concluded that the amounts towards Royalty, MMDR, DMF Fund, and Reserve Price, payable and paid by KPCL directly to the Government, are not includible in the value of supply for GST purposes. However, if it is agreed in the future that these amounts are payable to the applicant, they will be included in the value of supply and taxed at 18% GST.

Order:

Question 1: The activity carried out by the Applicant under the Agreement is a supply of Service and will be chargeable @ 18% as Support Services to Mining under Heading 9986.

Question 2: Not answered as the question was withdrawn by the applicant.

Question 3: Not answered as the question was withdrawn by the applicant.

Question 4: The amounts towards Royalty, MMDR, DMF Fund, and Reserve Price, payable and paid by KPCL directly to the Government, are not includible in the value of supply for GST purposes.