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TMI Blog2019 (10) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of royalty paid to the Government but it also includes the amount paid to the District Mineral Foundation of the district and to the National Mineral Exploration Trust as these payments are made under the statutory requirements of the Mines and Minerals (Development and Regulation) Act, 1957 which is taxable under GST. Taxes on the payment of royalty - payment made to District Mineral Foundation of the district and to the National Mineral Exploration Trust under reverse charge - HELD THAT:- Section 9(3) of the GST Act,2017 says, 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. Since the Government (Central/state) has provided the land to the applicant on lease to carry out the mining activity , the Government(Central/state) becomes the supplier of the service and the applicant (business entity) is the recipient of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dation of the district in which the mining operations are carried out. This amount is paid in terms of Section 9B (5) of the Mines and Minerals (Development and Regulation) Act, 1957. 7. Apart from the above levies as per the provisions of Section 9C of the Mines and Minerals (Development and Regulation) Act, 1957, Central Government has established a National Mineral Exploration Trust, with an object to use the funds accrued to the Trust for the purposes of regional and detailed exploration in such manner as may be prescribed by the Central Government. The holder of a mining lease shall pay to National Mining Exploration Trust, a sum equivalent to two percent of the royalty paid in terms of the Second Schedule. Accordingly, the applicant states that he has made statutory contributions into the above funds vide the following demand drafts, copy of the deposits are enclosed as under. Demand draft details Amount (in Rs.) Deputy Director, Department of Mines & Geology No. 398308 dated 05.05.2018 3,31,47,000 Deputy Director, towards District Mineral Fund No. 398309 dated 05.05.2018 33,14,700 National Mineral Exploration Trust No. 398310 dated 05.05.2018 6,62,940 8. In lig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations of the Council. 10. As discussed above, the applicant states that he has made statutory contributions to two funds established, under the Mines and Minerals (Development and Regulation) Act, 1957 read with District Mineral Foundation Rules, 2016 and National Mineral Exploration Trust Rules, 2015, called the District Mineral Foundation Fund and National Mineral Exploration Trust Fund respectively. 11. The object of the District Mineral Foundation is primordially to work for the interest and benefit of the persons and areas affected by mining related operations in the districts. In respect of the National Mineral Exploration Trust, the object is primarily to use the funds accrued to the Trust for the purposes of regional and detailed exploration. 12. In this regard, the applicant has submitted that the above payments are made as a percentage of the royalty paid to the Government's exchequer. Herein it is pertinent to quote Section 9 of the MMDR Act, 1957 wherein it has been stated that:- "the holder of a mining lease granted on or after the commencement of this Act shall pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Relevant SI. No. 5 is extracted below for ease of reference: SI.No. Category of supply of Services Supplier of service Recipient of Service (1) (2) (3) (4) 5 Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (1) renting of immovable property, and (2) services specified be low- (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers. Central Government, State Government, or Union territory local authority Any business entity located in the taxable territory. 20. The aforesaid principle of payment of tax under reverse charge has been adopted under the GST regime in line with the erstwhile service tax regime, wherein vide F. No. 334/8/2016-TRU inter-alia in SI.No.5 (extracted below), the government has clarified that the consideration paid for provision of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axing as well providing exemption under service tax to the GST regime. It is submitted that as there is a payment to NMET and DMF as a percentage of the mineral/iron ore excavated and dispatched, the Applicant contends that the same is towards supply of goods. The reverse charge provisions for services envisaged under Section 9(3) read with Notification No. 13/2017- Central Tax (Rate) shall not be applicable in the instant case since there is no specific service being provided by NMET and DMF to the business entity i.e the Applicant, in return for the payments made. 22. The applicant states that it is herein pertinent to quote the FAQ Governmental Services issued by the CBIC wherein under Question No.30, explanation has been given to the applicability of GST under RCM for Royalty charges:- Question 30: Whether an amount in the form of royalty or any other form paid/payable to the Government for assigning the rights to use of natural resources is taxable? Answer: The Government provides license to various companies including Public Sector Undertakings for exploration of natural resources like oil, hydrocarbons, iron ore, manganese, etc. For having assigned the rights to use the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MET and DMF are statutory payment towards holding a mining license. Such payments are made to specific funds of the Government, by virtue of holding a mining license by the Applicant and the Government does not provide anything in return to the Applicant. iii. As per Section 15 of the GST Act, value of supply shall include any taxes, duties, cesses, fees and charges levied under any statute, other than GST. This suggests that the payment made by the Applicant can be 'consideration' and included in the value of supply. However, as submitted in the previous paras, payments made by the Applicant do not qualify as 'consideration' and there is no 'supply' provided to the Applicant by the Government. These payments are made by the mining license holders. Therefore, such payments made by the Applicant to the said funds, cannot be included in the value of supply. iv. The Applicant submits that even though, the payments made by it are mandated by the statute, such payments are made only by mining license holder to the Government, for specific purpose for the benefit of the persons and areas affected by mining related operations in the districts and for regional and detailed exploration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the following ingredients:- a. Service tax is payable on the gross amount, charged:- the words "gross amount" only refers to the entire contract value between the service provider and the service recipient. The word "gross" is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word "gross" the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word "charged", it is clear that the same refers to the amount billed by the service provider to the service receiver. Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining the value on which service tax is payable. b. The amount charged should be for "for such service provided": Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Australian Taxation Office which deals with the test of nexus in detail, and relevant paragraphs are reproduced below:- "81. It will not be sufficient for there to be a supply and a payment. GST is not payable on supplies unless they are made for consideration, and the other tests in section 9-5 are satisfied.[F43] There must be a sufficient nexus between the supply and the payment. In C of IR v. New Zealand Refining Co. Ltd(1997) 18 NZTC 13187, at 13193 Blanchard J commented: 'It can be seen that ... a linkage between supply and consideration is requisite to the imposition of the tax ... There is a practical necessity for a sufficient connection between the payment and the supply. The mechanics of the legislation will otherwise make it impossible to collect the GST.'... 92. In a similar fashion to the GST legislation in New Zealand[F56], the nature of the nexus required between supply and consideration is specified in the definition of consideration. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or for the inducement' of a supply.[F57] 93. In determining whether a payment satisfies the requirements of subsection 9-15( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of 33.21 hectares by the Government on lease basis for a period of 50 years to carrying out activities of mining. On extraction of the iron ore from lease area, the applicant has to discharge Royalty to the Government exchequer, equivalent to fifteen percentage of average selling price of iron ore, ten percentage of the royalty to the District Mineral Foundation of the district in which the mining operations are carried on and two percent of the royalty to the National Mineral Exploration Trust, in light of Section 9, 9B (5) and 9C respectively of the Mines and Minerals (Development and Regulation) Act, 1957. 29. Presently the applicant is discharging GST on the royalty amount paid to the Government. Apart from the royalty amount, the Applicant also pays to the District Mineral Foundation of the district and National Mineral Exploration Trust amounts as specified by the Government. In this regard applicant seek Advance Ruling on,- "Whether the Applicant is liable to discharge GST under reverse charge, for the contribution made towards NMET and DMF, in light of SI No. 5 of the Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017." 30. Before going to the detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... District Mineral Foundation of the district and to the National Mineral Exploration are to be included in the value of the service provided is discussed as follows. 33. Regarding the issue of DMF and NMET Contribution, the following are observed: 33.1. Section 9B of the Mines and Minerals (Development and Regulation) Act, 1957 as amended from time to time reads as under: "9B. District Mineral Foundation,- (1) In any district affected by mining related operations, the State Government shall, by notification, establish a trust, as a non-profit body, to be called the District Mineral Foundation. (2) The object of the District Mineral Foundation shall be to work for the interest and benefit of persons, and areas affected by mining related operations in such manner as may be prescribed by the State Government. (3) The composition and functions of the District Mineral Foundation shall be such as may be prescribed by the State Government. (4) ................ (5) The holder of a mining lease or a prospecting licence cum mining lease granted on or after the date of commencement of the Mines and Minerals (Development and Regulation) Amendment Act, 2015, shall, in addition to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged separately by the supplier; Therefore from the above provision it is clear that, the value of the taxable supply of service not only includes the amount of royalty paid to the Government but it also includes the amount paid to the District Mineral Foundation of the district and to the National Mineral Exploration Trust as these payments are made under the statutory requirements of the Mines and Minerals (Development and Regulation) Act, 1957 which is taxable under GST. 35. Further, the question relates to paying taxes on the payment of royalty, payment made to District Mineral Foundation of the district and to the National Mineral Exploration Trust under "reverse charge" as per the provisions of section 9(3) of the GST Act 2017. The provisions are narrated as under:- 'Reverse charge' is defined under Section 2(98), as to mean, the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9 of the Central Goods and Services Tax Act or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act. Section 9(3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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