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2021 (3) TMI 643 - AAR - GSTClassification of services - Leasing - Royalty - exploration of natural resources - service provided by the Government of Uttar Pradesh to M/s. Ajay Kumar Singh in accordance with the Notification No. 11/2017-CT (Rate) dated 28.06.2017 read with annexure thereof - to be classified under Chapter number 9973 as Licensing services for the right to use minerals including its exploration and evolution or any other service under the said chapter or not - rate of GST HELD THAT - The Government provides license to various companies for exploration of natural resources. For this, the licensee company is required to pay the consideration to the Government in the form of annual licensing fee, lease charge, royalty, dead rent etc. In the State of Uttar Pradesh the mining lease is governed by the U.P. Minor Minerals (Concession) Rules, 1963. Rule 13 of the said Rules deals with Security Deposit , Rule 21 deals Royalty and Rule 22 deals Dead Rent . This activity of payment of lease charge/ dead rent/ royalty is towards the supply of service i.e. Licensing service for the right to use minerals including exploration and evolution, wherein the Government of Uttar Pradesh is supplier and the applicant is recipient. The liability of payment of GST liability on the amount of royalty paid to the Government is on the Service recipient i.e. the applicant in the instant case, in terms of Sl. No. 5 of Notification No. 13/2017 -Central Tax (Rate) dated 28-06-2017. Classification of service - HELD THAT - The Applicant has been awarded with a lease of the area specified in the lease agreement and conferred the right to extract the minerals lying underneath for appropriation. The right so conferred is not limited to using the minerals over the lease period but rather to appropriate the minerals extracted during the lease period Of course, extraction of minerals and the Government, does not continue to enjoy title over the minerals extracted by the lessee. Rather the applicant enjoys the title over the minerals extracted from the lease hold area and accordingly appropriates the property in the minerals by way of sale or otherwise - the impugned service received by the Applicant from the State Government merits classification under the head Licensing services for the right to use minerals including its exploration and evaluation at Serial No. 257, Heading 9973, Group 99733. Rate of GST on given services provided by the Government of Uttar Pradesh to applicant for which royalty is being paid - HELD THAT - It may be appreciated that amendment of Entry SI No. 17 (viii) was approved merely to clarify the GST rate applicable to the right to use Intellectual Property and similar products other than IPR which are covered under Group 99733 - 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. In view of this, the service received by the applicant from State Government is liable to be taxed @ 18%.
Issues Involved:
1. Classification of service provided by the Government of Uttar Pradesh. 2. Whether the service can be classified under Chapter number 9973 as "Licensing services for the right to use minerals including its exploration and evaluation." 3. Rate of GST on services provided by the Government of Uttar Pradesh for which royalty is being paid. Issue-wise Detailed Analysis: 1. Classification of Service: The applicant sought clarification on the classification of the service provided by the Government of Uttar Pradesh. The service involves granting a mining lease for the extraction of sand, which falls under tariff heading 2505 and is subject to GST at 5%. The Authority for Advance Ruling (AAR) examined the submissions and found that the issue falls under Section 97(2)(a) of the CGST Act 2017, related to the classification of goods or services. 2. Classification under Chapter 9973: The applicant questioned whether the service could be classified under Chapter number 9973 as "Licensing services for the right to use minerals including its exploration and evaluation." The AAR observed that the Government provides licenses for the exploration of natural resources, requiring the licensee to pay fees such as annual licensing fees, lease charges, and royalties. This activity is considered a supply of service under the heading 9973, specifically under group 99733. The AAR concluded that the service should be classified under "Licensing services for the right to use minerals including its exploration and evaluation" at Serial No. 257, Heading 9973, Group 99733. 3. Rate of GST: The applicant sought clarification on the rate of GST applicable to the services provided by the Government of Uttar Pradesh for which royalty is being paid. The AAR referred to Notification No. 11/2017-CT (Rate) dated 28-06-2017, which specifies the rates for heading 9973. It was observed that the rate for "Licensing services for the right to use minerals" is the same as the rate for the supply of like goods involving the transfer of title in goods. Consequently, the AAR determined that the applicable GST rate is 18% (9% CGST + 9% SGST). The AAR also referenced similar rulings from other states, such as the Rajasthan Authority for Advance Ruling and the Appellate Authority for Advance Ruling, Odisha, which both upheld an 18% GST rate for similar services. Additionally, the Commissioner, SGST, Uttar Pradesh, had clarified that the rate of GST on royalty received by the State Government is 18%. Ruling: The AAR unanimously ruled that the service in question is classifiable under "Licensing services for the right to use minerals including its exploration and evaluation" at Serial No. 257, Heading 9973, Group 99733, sub-heading 997337 of the "annexure: Scheme of Classification of Service" to Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 (as amended), and attracts 18% GST (9% CGST + 9% SGST). This ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.
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