2019 (11) TMI 479 - AAAR - GST

Rate of GST - seeking advance rulings on the supplies made in the past supplies - royalty paid to Government for mining of Iron Ore for the period July, 2017 to December 2018 - reverse charge mechanism - as per the understanding of the Applicant, the mining lease service availed by them should be classified under the head 99733 - AAR is of the view that the present case of the Applicant does not come within the ambit of provisions of Section 97 of the CGST Act, 2017. Jurisdiction of AAR - HELD THAT - The broad objective for setting up of the AAR/AAAR is to provide certainty in tax liability in advance in relation to an activity being undertaken or proposed to be undertaken by the Applicant as well as to reduce litigation. The activity on which the Applicant sought an advance ruling is a continuous activity and pronouncing an order on such activity shall be within the jurisdiction of the Authority . Merits of the case - rate of GST - HELD THAT - On a conjoint reading of the notification no 27/2018-Central Tax (Rate) dated 31 12.2018, Minutes / Agenda / Proposal / Discussion of the GST council, we are of the view that amendments have been carried out vide the aforesaid notification to clarify the legislative intent as well as to resolve the unintended interpretations It is well settled that the legislative intent cannot be defeated by adopting interpretations which is clearly against such interpretations. Reliance placed in the decision of the Hon ble Supreme Court of India in the case of COLLECTOR OF CENTRAL EXCISE, SHILLONG VERSUS WOOD CRAFT PRODUCTS LTD. 1995 (3) TMI 93 - SUPREME COURT , where in a 3 judges Bench of the Hon ble Court while interpreting amendments in Central Excise Tariff have held that the expression similar laminated wood in Heading No. 44.08 as it stood form the beginning must be construed to include within it block boards of all kinds so that the amendment in chapter Note 5 w.e.f. 19-3-19990 and thereafter w.e.f. 1-3-1992 merely clarified and made explicit that which was implicit in the heading throughout. These amendments were obviously made to end the dispute raised by the manufactures by an express statement - the ratio of the aforesaid case is squarely applicable to the instant case as well. Thus, the interpretation which defeats the intention of the legislature should be avoided. The licensing services for the right to use minerals including its exploration and evaluation received by the Applicant is taxable @ 18 % 9 % CGST and 9 % OGST during 07/2017 to 12/2018.

Summary

Issues Involved:
1. Rate of GST payable under Reverse Charge Mechanism on royalty paid to the Government for mining of Iron Ore for the period July 2017 to December 2018.
2. Classification of the service provided by the Government to the Applicant.
3. Applicability of past advance rulings from other states on the same issue.

Issue-wise Detailed Analysis:

1. Rate of GST Payable under Reverse Charge Mechanism on Royalty Paid to Government for Mining of Iron Ore for the Period July 2017 to December 2018:

The Applicant sought an advance ruling on the rate of GST payable on royalty paid to the State Government under the Reverse Charge Mechanism for the period from July 2017 to December 2018. The Advance Ruling Authority (AAR) members had differing views on whether an advance ruling could be issued for past transactions. One member opined that the ruling should pertain to future transactions only, as per Section 97 of the CGST Act, 2017, while the other member believed that the ruling could also cover past transactions since GST rates are prescribed by notifications.

The Appellate Authority examined the issue and found that the service of mining lease availed by the Applicant should be classified under the head 997337, which pertains to "Licensing services for the right to use minerals including its exploration and evaluation." The rate of GST applicable to such services was determined to be 18% (9% CGST and 9% OGST) during the period from July 2017 to December 2018.

2. Classification of the Service Provided by the Government to the Applicant:

The Applicant argued that the mining lease service should be classified under the head 99733 and that the rate of GST applicable to the supply of iron ore (5%) should apply to the royalty paid. However, the Appellate Authority found that the service received by the Applicant from the State Government merits classification under the head 997337, which includes "Licensing services for the right to use minerals including its exploration and evaluation." This classification was consistent with the rulings of Advance Ruling Authorities from other states.

The Appellate Authority disagreed with the rulings of AAR Haryana and AAR Chhattisgarh, which had held that the rate of GST on such services should be the rate applicable to the minerals. The Authority reasoned that the mining lease service does not involve the lease of any goods but rather the conferment of the right to exploit and appropriate the minerals, and hence, the rate prescribed for leasing of goods cannot be applied.

3. Applicability of Past Advance Rulings from Other States on the Same Issue:

The Applicant cited several advance rulings from different states, including Rajasthan, Haryana, Chhattisgarh, Madhya Pradesh, and Karnataka, which had held that the mining lease service is classifiable under the head 99733 and that the rate of GST applicable to such services should be 5% for the period from July 2017 to December 2018. However, the Appellate Authority found these rulings to be devoid of logic and inconsistent with the legislative intent and the recommendations of the GST Council.

The Authority examined the amendments made to the Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017, particularly the amendments introduced by Notification No. 27/2018-Central Tax (Rate) dated 31-12-2018, which clarified that the rate of GST applicable to leasing or renting of goods should not apply to mining lease services. The Authority concluded that the rate of GST on mining lease services should be 18% (9% CGST and 9% OGST) during the period from July 2017 to December 2018.

Conclusion:

The Appellate Authority for Advance Ruling, Odisha, ruled that the licensing services for the right to use minerals, including their exploration and evaluation, received by the Applicant, are taxable at 18% (9% CGST and 9% OGST) for the period from July 2017 to December 2018. The reference from the Odisha Authority for Advance Ruling was disposed of accordingly.