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TMI Blog2019 (10) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment. The leasing of the Government land to the applicant is considered as supply of service as per sub section (1) of section 7 of the CGST/ KGST Act 2017 - from the leasing of the Government land to the applicant to carry out the activity of the mining is a supply of service to the applicant. Whether the amount paid as royalty and amount paid to the District Mineral Foundation of the district and amount paid to the National Mineral Exploration are to be included in the value of the service provided? - HELD THAT:- The value of the taxable supply of service includes the amount paid as taxes, duties, cesses, fees and charges levied under any law. Therefore the royalty paid @ ₹ 60 per MT of building stones as per the Mines and Minerals (Development Regulation) Act, 1957 (MMDR Act) read with Karnataka Minor Mineral Concession Rules, 1994 (KMMC Rules) and amount paid to District Mineral Foundation (DMF) equal to 30% of royalty as per the MMDR Act read with Karnataka District Mineral Foundation Rules, 2016 (KDMF Rules) to the Government are to be included in the value of the service provided to the applicant as these payment are made under the statutory requirements of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich involves leasing of land, the transaction is covered under the residual entry (viii) of Serial Number 17 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended by the Notification No. 27/2018 - Central Tax (Rate) dated 31.12.2018 and is taxable at 9% CGST - Similarly, for the same reasons, the transactions are taxable under SGST at 9% on or after 31.12.2018 and at the rate applicable to the mineral ore extracted prior to 31.12.2018. On plain reading of section 15 of the CGST / SGST Act along with the rule 27, it says that any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient is includible. Further, in section 15(2) of the CGST Act, it is clearly seen that any amount of any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than the GST related Acts are includible in the value of supply. There is no doubt that the amount payable by way of DMF is on account of supply made and is directly linked to the royalty payable and is also computed as a fixed percentage of royalty. The service provided is only the license to extract building stone and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o District Mineral Foundation ( DMF ) as per the MMDR Act read with Karnataka District Mineral Foundation Rules, 2016 ( KDMF Rules ). The applicant has been paying GST on reverse charge under heading 997337 at 18% on payments made towards royalty and DMF as per Notification 13/2017 Central Tax (Rate) dated June 28, 2017, i.e. Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding the specified services, which are chargeable to tax under reverse charge. 4. The Applicant seeks Advance Ruling on the following questions: I. Whether royalty payments in respect of quarrying /mining lease as per the MMDR Act read with the KMMC Rules would amount to supply of goods or service under the Central Goods and Service Tax Act, 2017 (CGST Act) and the Karnataka Goods and Service Tax Act, 2017 (KGST Act)? II. Where it is clarified that quarrying / mining royalty is taxable under CGST Act, whether royalty payment in respect of quarrying/mining lease as per the MMDR Act read with KMMC Rules is in the nature of Licensing services for the right to use minerals falling under the heading 9973 attracting GST at the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of tax for supply of Building stones). Royalty is in the nature of periodical payments to be made by the lessee under his covenants in consideration of the various benefits which he is granted by the lessor. Royalty on quarrying / mining is collected by the State Government for right given to the applicant to extract mineral and is payable based on quantum mineral removed or consumed. 7. The applicant submitted that the term Royalty is not defined in MMDR Act/KMMC Rules. However, applicant has referred some judicial decisions to get the meaning of royalty. Many of these judicial decisions have been summed up in the judgment delivered by the Supreme Court in the case of the India Cement Ltd., etc. V. State of Tamil Nadu, etc. (AIR 1990 SC 85) = 1989 (10) TMI 53 - SUPREME COURT . The case was primarily on the legality of the cess on royalty. However, the meaning and concept of royalty has also been discussed in the judgement in an incidental manner. Although royalty has not been explicitly defined, the Supreme Court held that royalty is separate and distinct from land revenue and that it is not related to land as a unit. On the other hand, royalty is payable on a propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in goods without the transfer of title thereof. Same rate of central tax as on supply of like goods involving transfer of title in goods (v) Leasing of aircrafts by an operator for operating scheduled air transport service or scheduled air cargo service by way of transaction covered by clause (f) paragraph 5 of Schedule II of the Central Goods and Services Act, 2017. 2.5 Provided that credit of input tax charged on goods used in supplying the service has not been taken. (vi) Leasing or rental services, with or without operator other than (i), (iii), (iv) and (v) above. Same rate of central tax as applicable on supply of like goods involving transfer of title in goods. 9. Further applicant submitted that the Government has clarified that licensing services provided for exploration of natural resources would be covered under reverse charge mechanism. Services by the Government in the nature of Renting of Immovable property is under the exclusion list of Notification 3/2017 - Central Tax (Rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry amount to the District Mineral Foundation shall not qualify as supply of goods or services under GST Act. Once there is no supply of goods or services, question of levying any CGST or SGST does not arise as the taxable event itself has not occurred in this case. The trust established does not fall under the definition of Government as it is an independent body established by Government. Hence, contribution to DMF would not be subject to reverse charge in the hands of the Applicant. 12. Further the applicant made the additional submission regarding the consequence of non-payment to District Mineral Foundation ( DMF ) in this regard applicant submitted that the payment to DMF is governed by Section 15 A of the Mines and Minerals (Development and Regulation) Act 1957 ( MMDR Act) and Section 25 of the MMDR Act provides that any sum due to the government will be recovered as arrears of land revenue. Also, Section 15(4) of the Act empowers the State Government to make rules for regulating the manner in which the DMF shall work. In exercise of the said powers, Karnataka Government has formulated the District Mineral Foundation Rules, 2016 ( the Rules) to set up a non-profit trust to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paying royalty @ ₹ 60 per MT of building stones as per the Mines and Minerals (Development Regulation) Act, 1957 ( MMDR Act ) read with Karnataka Minor Mineral Concession Rules, 1994 ( KMMC Rules ). The Applicant is also paying 30% of royalty to District Mineral Foundation ( DMF ) as per the MMDR Act read with Karnataka District Mineral Foundation Rules, 2016 ( KDMF Rules ) and applicant had sought Advance Ruling as mentioned above. 16. The applicant has obtained Government land on lease for quarrying Building Stone and in turn applicant pays Royalty along with payment made to District Mineral Foundation of the district and National Mineral Exploration Trust as specified by the Government. The leasing of the Government land to the applicant is considered as supply of service as per sub section (1) of section 7 of the CGST/ KGST Act 2017 which is narrated as under: 7. (1) For the purposes of this Act, the expression supply includes: a. all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Concession Rules, 1994 ( KMMC Rules ) and amount paid to District Mineral Foundation ( DMF ) equal to 30% of royalty as per the MMDR Act read with Karnataka District Mineral Foundation Rules, 2016 ( KDMF Rules ) to the Government are to be included in the value of the service provided to the applicant as these payment are made under the statutory requirements of the Mines and Minerals (Development and Regulation) Act, 1957 which is taxable under GST. 19. The applicability of GST rate for the aforementioned service is based on the classification of service. In the present case, the mining rights so granted is covered under the sub heading 997337 that specifies - Licensing services for the right to use minerals including its exploration and evaluation . 19.1. Regarding the rate of tax applicable on the above supply Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 is verified and found that the entries related to SAC 9973 are as under: Sr.No. Heading Description of Service Rate (percent) Conditions 17 Heading 9973 (Leasing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . . . (iii) Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Same rate of central tax as on supply of like goods involving transfer of title in goods - (iv) . . . . . . (v) . . . . . . (vi) Leasing of motor vehicles purchased or leased prior to 1st July, 2017 65 percent of the rate of central tax as applicable on supply of like goods involving transfer of title in goods Note: Nothing contained in this entry shall apply on or after 1st July, 2020. - (vii) Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v) and (vi) above. Same rate of central tax as appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35 Heading 9997 Other services (washing, cleaning and dyeing services; beauty and physical well-being services; and other miscellaneous services including services nowhere else classified). 9 - 19.4 The notification, No. 11/2017 - Central Tax (Rate) dated 28.06.2017, Serial No. 17 was again amended by Notification No. 27/2018 - Central Tax (Rate) dated 31-12-2018 and after the amendment the entries look as under: Sr.No. Heading Description of Service Rate (percent) Conditions 17 Heading 9973 (Leasing or rental services, with or without operator) (i) . . . . . . (ii) . . . . . . (iii) Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable on supply of like goods involving transfer of title in goods. In the pertinent case, there was a transfer of title in goods involved in the activities of the applicant and that was of the extracted building stone on which the royalty was paid and hence the tax rate applicable on the service is that rate of tax applicable on the building stone, the transfer of title of which was happening in the transaction. 19.6 But after the amendment of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 by the Notification No. 27/ 2018 - Central Tax (Rate) dated 31.12.2018, leasing or renting of goods and leasing or rental services have been placed under separate item numbers under serial number 17 of the Notification. Accordingly the leasing or renting of goods was made taxable at the rate of tax which was applicable on supply of like goods involving transfer of title in goods and all other leasing or rental services have been made taxable at 9% CGST. Since the transaction of the applicant is not leasing of goods but license to extract and use mineral ore, which involves leasing of land, the transaction is covered under the residual entry (viii) of Serial Number 17 of Notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 the royalty, pay to the District Mineral Foundation of the district in which the mining operations are carried on, an amount which is equivalent to such percentage of the royalty paid in terms of the Second Schedule, not exceeding one-third of such royalty, as may be prescribed by the Central Government. (6) The holder of a mining lease granted before the commencement of the Mines and Minerals (Development and Regulation) Amendment Act, 2015, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply. 21.4 On plain reading of section 15 of the CGST / SGST Act along with the rule 27, it says that any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient is includible. Further, in section 15(2) of the CGST Act, it is clearly seen that any amount of any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than the GST related Acts are includible in the value of supply. There is no doubt that the amount payable by way of DMF is on account of supply made and is directly linked to the royalty payable and is also computed as a fixed percentage of royalty. 21.5 Further, it is also an admitted fact by the applicant that in case of non-payment of DMF the mineral permits would not be issued to the applicant and hence he would not be able to use land for mining and thus there would be no supply at all. Though the ultimate beneficiaries are the trusts set up by the State Government and Central Government respectively, it is, like royalty, payable under the same Act. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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