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2024 (10) TMI 770 - AAR - GSTLevy of GST on the Mining Lease payments (applicability of GST on the Royalty payment of Mining Lease to Government of Rajasthan under Reverse Charge Mechanism) - payment of upfront Payments as per the Tender Documents which are paid in installments much before issuing LOI and after issuing LOI but before entering in to the Lease Agreement - State of Telangana or to apply for registration in the State of Rajasthan and pay GST - applicable rate of GST - eligibility of Input Tax Credit. Whether the applicant is liable any GST on the Mining Lease payments (applicability of GST on the Royalty payment of Mining Lease to Government of Rajasthan under Reverse Charge Mechanism)? - HELD THAT - Section 9 (3) of CGST Act, 2017 provides that 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 - the Applicant is liable to pay GST on Mining Lease Payments including Royalty, to be paid to the Govt. of Rajasthan under RCM. If the applicant is liable to pay GST on the above, what will be the applicable rate of GST? - HELD THAT - The Applicant is liable to pay GST @ 18% (SGST 9% CGST 9%). If GST is applicable, whether the applicant is liable to pay GST on the payment of Upfront Payments as per the Tender Documents which are paid in installments much before issuing LOI and after issuing LOI but before entering in to the Lease Agreement? - HELD THAT - The Applicant is of the opinion that payment of royalty amount to the Government will be coming in to effect only after entering in to the Mining Lease Agreement with the Government of Rajasthan. The lessor and lesee relationship will be coming into effect only after entering the lease agreement. The payments made as per the conditions in the Tender Documents prior to issue of Letter of Intent in the capacity of Preferred Bidder and payment made after issue of LOI but before entering into the Mining Lease agreement as Successful Bidder cannot be considered as Advance payments for supply of services and GST is not liable to be paid at the time of making payment by considering the same as Advance payments for supply of services. The advance deposit money is received only as security. Generally, it is not used by the supplier in the course of supply Of goods or services. It is forfeited in case of violations of terms and conditions as mentioned in tender document. As per point 13.1 of Tender Document, the upfront payment paid by the Successful Bidder shall be adjusted in full at the earliest against the amount to be paid under sub-rule (3) of rule 8 of Auction Rules on commencement of production of mineral which shows that advance payment made by the Applicant shall be adjusted towards future payments to be made by them. Hence Section 2 (31) of CGST Act, 2017 is not applicable in the instant case. The Applicant is liable to pay GST on the upfront payments made to the State Govt. under Reverse Charge Mechanism (RCM) in term of Serial No.5 of Notification No. 13/20317-CetraI Rate Dated 28.06.2017. lf GST is applicable, whether the applicant can pay GST from the State of Telangana or to apply for registration in the State of Rajasthan and pay GST. (v) Whether the GST paid is eligible to be claimed as Input Tax Credit or not? - HELD THAT - The tax payable under the provisions of sub-section (3) and (4) of Section 9 is included in input tax and the credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger and so the applicant is eligible to avail ITC of GST paid by them under RCM subjected to fulfilment of conditions laid down under section 16 of CGST Act, 2017.
Issues Involved:
1. Liability of GST on Mining Lease payments under Reverse Charge Mechanism (RCM). 2. Applicable rate of GST on Mining Lease payments. 3. Liability to pay GST on Upfront Payments before the Lease Agreement. 4. Requirement for GST registration in Rajasthan versus Telangana. 5. Eligibility to claim Input Tax Credit (ITC) on GST paid under RCM. Issue-wise Detailed Analysis: 1. Liability of GST on Mining Lease Payments under RCM: The judgment determined that the applicant is liable to pay GST on Mining Lease payments, including Royalty, to the Government of Rajasthan under the Reverse Charge Mechanism (RCM). This conclusion was based on Serial No. 17 of Notification No. 11/2017-Central Rate dated 28.06.2017, which covers licensing services for the right to use minerals under SAC 997337 and is subject to GST. Furthermore, Serial No. 5 of Notification No. 13/2017-Central Rate dated 28.06.2017 specifies that services supplied by the government to a business entity, excluding certain exceptions, are liable for GST under RCM. 2. Applicable Rate of GST on Mining Lease Payments: The applicable rate of GST on the Mining Lease payments, including Royalty, was determined to be 18%, split equally between SGST (9%) and CGST (9%). 3. Liability to Pay GST on Upfront Payments: The judgment clarified that the applicant is liable to pay GST on Upfront Payments made as per the Tender Documents, even if these payments were made before the issuance of the Letter of Intent (LOI) and before entering into the Lease Agreement. The rationale was that these payments are considered advance payments, as they are adjusted against future payments once the mining operations commence. Section 2(31) of the CGST Act, 2017, which defines "consideration," supports this interpretation as it includes any payment made in respect of the supply of goods or services. 4. Requirement for GST Registration in Rajasthan versus Telangana: The applicant cannot pay GST from the State of Telangana for services received in Rajasthan. According to Section 24(iii) of the CGST Act, 2017, a person required to pay tax under RCM must register in the state where they receive the services. Therefore, the applicant must register and pay GST in Rajasthan. 5. Eligibility to Claim Input Tax Credit (ITC): The applicant is eligible to claim Input Tax Credit (ITC) on the GST paid under RCM, subject to the conditions laid out in Section 16 of the CGST Act, 2017. This section allows registered persons to claim ITC for input tax charged on supplies used in the course or furtherance of their business, provided they meet specific requirements such as possessing a tax invoice and having received the goods or services. Ruling: 1. The applicant is liable to pay GST on Mining Lease payments, including Royalty, to the Government of Rajasthan under RCM. 2. The applicable rate of GST is 18% (SGST 9% & CGST 9%). 3. The applicant is liable to pay GST on Upfront Payments as per the Tender Documents. 4. The applicant must register and pay GST in Rajasthan, not from Telangana. 5. The applicant is eligible to avail ITC of the GST paid under RCM, subject to conditions under Section 16 of the CGST Act, 2017.
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