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2019 (8) TMI 1010 - AAAR - GSTClassification of services - Rate of GST - Royalty in relation to mining lease - Excess Royalty Collection Contracts (ERCC) - services provided by the State of Rajasthan to M/s. Aravali Polyart Private Limited for which royalty is being paid - classified under SAC 9973 specifically under 997337 as Licensing Sendees for the right to use minerals including its exploration and evaluation or as any other Sendee? - reverse charge mechanism - N/N. 11/2017-Central Tax (Rate) dated 28.06.2017 - challenge to AAR decision. HELD THAT - The Service has been rightly classified under the Service Code 997337 Licensing services for the right to use minerals including its exploration and evaluation (entry No. 257) falling under the Group 99733 Licensing Services for the right to use intellectual property and similar products (entry No. 250) falling under the Heading 9973 Leasing or rental services with or without operator (entry No. 232) . Determination of the rate of tax on the impugned Service - HELD THAT - The entry No. 17 of the Notification No. 11/2017 - Central Tax (Rate), deals with the Heading 9973 (Leasing or rental services with or without operator). Since the discussion under the agenda covers Group 99733, it is wholly applicable on the activity under consideration i.e. impugned Service. From perusal of point No. 1 of the Discussion, it is very much clear that the impugned Service is not classifiable under entry No. (iii) and (iv) of the Notification No. 11/2017- Central Tax (Rate). Perusal of point No. 2 of the Discussion makes it clear that the rate under pre-revised entry No. 8 does not apply to Licensing services for the right to use intellectual property and similar products other than IPR . Since the impugned Service is also the Licensing services for the right to use intellectual property and similar products other than IPR , the rate under pre-revised entry No. 8 is not applicable on it. Since the rate under newly created entry No. (viia) is same as that of pre-revised entry No. (viii), the impugned Service would not attract this rate and so would also not merit classification under the entry No. (viia). Even, the description of the Service under the entry No. (viia) i.e. Leasing or renting of Goods by no stretch of imagination covers the impugned Service i.e. Licensing services for the right to use intellectual property and similar products other than IPR . It is crystal clear that neither entry No. (iii) nor (iv) nor (viia) would cover the impugned Service. Point No. 2 ibid clearly mentions that for this Service (Licensing services for the right to use intellectual property and similar products other than IPR) ,the GST council has carved out a new entry No. (viii) with the Service description Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi), (vii) and (viia) above with rate of tax as 18%. AAR ruling upheld - appeal dismissed.
Issues Involved:
1. Classification of service provided by the State of Rajasthan for which royalty is being paid. 2. Applicable GST rate on the said service. Issue-wise Detailed Analysis: 1. Classification of Service Provided by the State of Rajasthan: The appellant, M/s. Aravali Polyart (P) Ltd., sought an advance ruling on the classification of the service provided by the State of Rajasthan for which royalty is being paid. The Rajasthan Authority for Advance Ruling (AAR) classified the service under SAC 997337 as "Licensing services for the right to use minerals including its exploration and evaluation." The appellant did not object to this classification but contested the applicable GST rate. 2. Applicable GST Rate on the Said Service: The AAR, Rajasthan, ruled that the service attracts 18% GST under SI. No. 17(viii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The appellant argued that the service should be classified under SI. No. 17(iii), (iv), or (viia) of the same notification, attracting a GST rate of 5%. The appellant's contentions included: - Royalty is linked with the right to use goods (minerals) provided by the State Government. - Royalty varies with the quantity of minerals extracted or removed, and thus, it is a consideration for the right to use minerals. - The appellant cited various legal precedents and definitions to support their argument that royalty is a consideration for the right to use minerals. During the personal hearing, the appellant reiterated their stance and cited additional rulings in their favor. Discussion and Findings: The appellate authority examined the classification and GST rate applicable to the service. It was confirmed that the service is rightly classified under SAC 997337. The authority then analyzed the applicable GST rate under entry No. 17 of Notification No. 11/2017-Central Tax (Rate). The authority found that the service does not fall under entry Nos. 17(iii), (iv), or (viia) but under entry No. 17(viii), which prescribes an 18% GST rate. The authority also reviewed the recommendations of the GST Council's 31st meeting, which clarified that the residuary rate entry for Heading 9973 should be split, and the service in question falls under the new entry No. 17(viii) with an 18% GST rate. The appellant's reliance on earlier rulings was dismissed as those rulings did not consider the updated notification. Order: The appellate authority upheld the AAR, Rajasthan's ruling that the service is taxable at 18% under entry No. 17(viii) of Notification No. 11/2017-Central Tax (Rate). Consequently, the appeal filed by M/s. Aravali Polyart (P) Ltd. was dismissed.
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