2022 (6) TMI 419 - AAR - GST

Levy of GST - lease of land for mining - royalty paid in respect of Mining Lease can be classified under Licensing services for the right to use minerals including its exploration and evaluation falling under the heading 9973 attracting GST - supply of like goods involving transfer of title in goods - determination of the liability to pay tax on contributions made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) as per MMDR Act, 1957. HELD THAT - The contract for mining lease cannot be classified as Leasing or Renting of goods . Further the CGST Act or rules made there under or Notifications issued do not create a legal fiction for mining to be classified as Leasing or Renting of goods . At Serial no. 17 of the Notification No. 11/2017 chapter heading no. 9973 of SAC enumerates leasing or rental services without an operator . This entry was modified by removing with operator vide Notification No. 27/2018 dated 31.12.2018. According to explanation to this notification any reference to chapter, section or heading shall be with respect to scheme of classification of services annexed to the notification. In this annexure, the service leasing or renting of goods is enumerated under group head 99732 - Under this group, the tariff item 997337 enumerates licensing services for the right to use minerals including its exploration and evaluation . This is the appropriate entry concerning royalty on mining. Hence the rate of tax of the residual entry is attracted on the royalty paid for mining at the rate of 9% CGST 9% SGST. The holder of mining lease shall also pay, to the District Mineral Foundation of the district in which the mining operations are carried under Section 9B of the MMDR Act, 1957 a sum in addition to the royalty either 1/3rd of such royalty or any other such amount in terms of Second Schedule of the MMDR Act - Similarly the holder of the mining lease shall also pay an amount of 2% of the royalty payable to the National Mineral Exploration Trust under Section 9C of the MMDR Act, 1957. Both these amounts are paid in addition to the royalty payable and in a proportion to the royalty paid for extracting minerals from a contract of mining lease. Therefore they are consideration for the service of right to use minerals including its exploration and evaluation which is enumerated as tariff item 997337 , this is same as royalty and hence attract tax at the rate of 9% CGST SGST each.

Summary

Issues Involved:
1. Classification of royalty paid in respect of Mining Lease under GST.
2. Determination of the liability to pay tax on contributions made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) under the MMDR Act, 1957.

Issue-wise Detailed Analysis:

1. Classification of Royalty Paid in Respect of Mining Lease under GST:

The applicant, M/s. Singareni Collieries Company Limited, sought clarification on whether the royalty paid for mining leases could be classified under "Licensing services for the right to use minerals including its exploration and evaluation," falling under heading 9973, and attracting GST at the same rate as applicable on the supply of like goods involving the transfer of title in goods.

The Authority for Advance Ruling (AAR) examined the nature of mining leases, referencing the Supreme Court's judgment in the case of State of H.P & Ors Vs Gujrat Ambuja Cement Limited & Ors. The Supreme Court held that a mining lease is an interest in immovable property and does not constitute the leasing or renting of goods. The right conferred by the lease deed to extract and remove minerals is a 'profit a prendre.' The consideration for a mining lease includes rent for the area leased, dead rent, and royalty, with royalty being the payment made for minerals extracted proportional to the quantity extracted.

Based on this, the AAR concluded that the contract for a mining lease cannot be classified as 'Leasing or Renting of goods.' Instead, the appropriate classification is under tariff item '997337,' which pertains to 'licensing services for the right to use minerals including its exploration and evaluation.' Therefore, the royalty paid for mining attracts GST at the rate of 9% CGST and 9% SGST.

2. Determination of the Liability to Pay Tax on Contributions Made to DMF and NMET:

The applicant also sought clarification on the tax liability for contributions made to the District Mineral Foundation (DMF) and the National Mineral Exploration Trust (NMET) as per the MMDR Act, 1957. The applicant argued that no tax should be payable on such contributions on a reverse charge basis, as these organizations are classified as governmental authorities under Notification No. 32/2017.

The AAR noted that the contributions to DMF and NMET are additional payments made in proportion to the royalty paid for extracting minerals under a mining lease. These contributions are considered part of the consideration for the service of the right to use minerals, including their exploration and evaluation, which falls under tariff item '997337.' Consequently, these contributions attract GST at the same rate as the royalty, i.e., 9% CGST and 9% SGST.

Ruling:

1. Royalty Classification: The entry '997337' is not enumerated at Serial No. 17(viia) and therefore is a different tariff item attracting tax at the rate of 9% CGST and SGST each.
2. Tax on DMF and NMET Contributions: The tax rate applicable for entry '997337' is applicable to contributions made to DMF and NMET.