RCM LIABILITY ON ROYALTY CHARGED / PAID TO MINES OWNER, Goods and Services Tax - GST

[Shailander Jain]

We are trading in Sand Stone and purchasing sand stone cobbles from Wholesale dealers. During movement of goods to our location, royalty has charged by Mining contractor from truck driver per tone basis which was paid by truck driver and afterward we reimbursed the same to truck driver. We have disclosed the said royalty payment in book of account as Royalty Expenses. Now during audit department is asking to pay GST under RCM on said Royalty Expenses. As we are not mines owner ,, we are only traders of sand stone .Is we are liable for payment of RCM.

Plz guide

Posts / Replies

[Sadanand Bulbule]

Dear Sir

Please visit ID No.118736 dated 05/09/2023.

[KASTURI SETHI]

RCM is not applicable to you. You are required to pay GST on the transaction value of your supply. Your transaction value, inter alia, includes all inward expenses as per Section 15 (a) (b) (c) of CGST Act. Royalty expenses shall form the part of transaction value.

Hypothetical situation

If contractor pays GST under RCM and you also pay GST under RCM that will amount to double taxation. Contractor is required to pay under RCM and not you.

[Sadanand Bulbule]

Dear Sirji

I fully endorse your clarification.

[Shailander Jain]

Thanks for your guidance sir.

However plz clear one more issue relate to this point... that in case mining department given right to some one contractor on payment of lumpsum amount (like toll tax) to charge and collect Royalty @ per ton basis from every vehicle crossing the mining area. In this situation mines owner and local trader are not paying royalty at the time of exploration as movement of goods not started . During movement of goods final recipient is paying royalty to contractor.

Query : In that case whether final recipient is liable for payment of RCM on royalty or not.

[Sadanand Bulbule]

Dear querist

Only the Mining Lease Holder is liable to pay GST under RCM. As such traders are not liable to pay it. However it gets subsumed in the cost of goods mined in the hands of ML holders.

[Shilpi Jain]

Amount paid by the trader to the contractor is only reimbursement of the cost of royalty as a part of the price.

Since the lease has been taken by the contractor, he would be liable to GST if any liability.

The issue of tax on royalty is pending before the highest court of this country

[KALLESHAMURTHY MURTHY]

Dear Sir,

The charging section is 9(3) for the application of tax under the KGST/CGST Act in accordance with Notification No.13/2017 dated 28-06-2017.

As per Sr. No.5 of the notification 13/2017 dated 28.06.17 services supplied by the Central Government, State Government, Union Territory or Local Authority to a business entity in respect of leasing services by way of assignment of right to use natural resources is liable to tax under RCM.

Royalty is payable only for the extraction of mining activity at a rate prescribed by the Govt. per tonne. It is payable to the Department of Mines & Geology. So the supply of service is from the government entity to the recipient of service, that is, the Leaseholder of the mining license. The Leaseholder of the license has to pay tax under RCM while filing his returns under GST. The trader is not the recipient of service from the government. He only procures goods from the mining extractor. Royalty charges collected from the trader is nothing but the part of expenses of trading activity. Whatever royalty collected by the trader is to be paid to the government by the mining contractor and the contractor only is responsible for payment of GST under RCM.

The Circular No. 164/20/2021-GST dated 6-10-2021 it is clarified in Para (9.1) that, “Representations have been received requesting for clarification as to the rate of GST applicable on supply of services by way of granting mineral exploration and mining rights.

So, the trader does not have the mining rights and hence not liable to pay tax under RCM on royalty. Here royalty charges paid is the part of the turnover for the trader.

Regarding the issue of tax on royalty, I endorse Madam Shilpi Jain.

[KASTURI SETHI]

Sh. Kalleshamurthy Murthy Ji,

Thanks a lot for throwing more light on the issue. I really appreciate your understanding, interpretation, analysis and conclusion.

[KALLESHAMURTHY MURTHY]

Dear learned Sethiji Sir,

Thanks a lot for the good compliments. I am much pleasure to read it and it is an encouragement for me to participate more on this platform with more reliability.

With respects.