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TMI Blog2020 (4) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to Exploration and Evaluation of Minerals which is duly covered under SAC code No. 997337 which classifies Licensing services for the right to use minerals including its exploration and evaluation - As per Section 9B of the MMDR Act, DMF (District Mineral Foundation) is a trust which is formed by the State Government with an objective to work for the benefits and interest of the persons and areas affected by mining-related operations. Any person who is liable to pay royalty towards the exploration of minerals shall pay a certain percentage of the royalty amount towards DMF. By no stretch of imagination, the contributions paid the said trusts can be treated as donation. In case of failure to contribute to the above trusts, the business/ rights of iron ore extraction would legally get hampered and terminated. Whereas, donations are always of voluntary nature here in the instant case there is a compulsion to make payment to the said trusts in proportion to the amount of royalty and sale proceeds. Thus there hardly remains any doubt that the contributions paid by M/S Cosme Costa to the said trusts are amounts being paid in the course of furtherance of their business activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rivastava, Partner, BDO India LLP PROCEEDING (Under Section 98 of the Goa Goods and Services Tax, Act 2017) The present application has been filed under section 97 of the Goa Goods and Services Tax Act, 2017 and the Central Goods and Services Tax, Act 2017 by M/s. Cosme Costa Sons, Mapusa, Goa seeking an Advance Ruling in respect of the following question: i. Classification of Leasing service against payment of Royalty and the rate of GST applicable on royalty for extraction of iron; ii. Whether the payment made to National Mineral Exploration Trust (NMET) Fund, District Mineral Foundation (DMF) Fund and Goa Mineral Ore Permanent Fund Trust (GMOPFT) is subject to levy of GST and if held in affirmative, rate at which GST is payable in relation to extraction of iron. BRIEF FACTS OF THE CASE: 2. At the outset, we would like to make it clear that the provisions of both the CGST Act and the Goa GST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the Goa GST Act. Further to the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant under Reverse Charge Mechanism in accordance with the provisions of Section 9(3) of the CGST Act, 2017 read with entry no: 5 of Notification No: 13/2017 - Central Tax (Rate) dated 28 th June, 2017 and similar notification issued by the State Government. The applicant is of the view that the most appropriate classification would be under Heading: 9973 - (Leasing or rental services with or without operator) with the sub-category 997337 (Licensing services for the right to use minerals including its exploration and evaluation). Royalty is in the nature of periodical payments to be made by the lessee under his covenants in consideration of the various benefits granted by the lessor. Royalty is collected by the State Government from the business entities for right given to them to extract mineral and is collected based on quantum of mineral removed or consumed. The applicant is also of the view that the Royalty on extraction of iron ore is subject to GST @ 5% (2.5% CGST and 2.5% SGST) till 30.12.2018 and thereafter @ 18% (9% CGST and 9% SGST) SUBMISSION ON CONTRIBUTION TO NMET FUND: 4.2 The applicant submitted that the activities carried out by NMET is not a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be clubbed along with royalty in the value of supply of licensing services. The applicant submitted that in no way such contribution made to NMET can be regarded as payment towards service by way of royalty or right to use minerals. Had such contribution been towards mining rights, the same would be paid to the State Government. The said sum is used towards purposes such as taking-up exploration of areas for regional and detailed exploration, giving priority particularly to strategic and critical minerals, etc. by NMET independently and cannot be considered as consideration towards mining right. 4.6 The applicant further submitted that the Bombay High Court in the case of Bai Mumbai Trust v. Suchitra Wd/o Sadhu Koraga Shetty - Suit (L) No.236 of 2017 dated September 13, 2019 = 2019 (9) TMI 929 - BOMBAY HIGH COURT , while holding that a supply must involve reciprocal obligations, observed that there should be enforceable reciprocal obligations for supply and unilateral acts, or any resulting payment of damages cannot be encompassed into supply. The applicant further argued that in a recent CBIC circular, where the issue of levy of GST on the service of display of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated to pay 10% of the sale proceeds to the Goa Mineral Ore Permanent Fund Trust (GMOPFT). 6.1 The applicant seeks Advance Ruling as to whether royalty paid in respect of Mining Lease can be classified under Licensing services for the right to use minerals including its exploration and evaluation falling under the SAC 9973 and what is the rate of GST on the said supply. Further, section 9B and 9C of the Mines and Minerals (Development Regulation) Act, 1957 mandates that the miners shall contribute 30% of the royalty amount paid to the Government, to the District Mineral Foundation and 2% of the royalty amount to the National Mineral Exploration Trust . In this context the applicant seeks Advance Ruling as to whether the contribution/ payment made to the funds can be treated as consideration against supply and whether the same is subject to levy of GST under Reverse Charge. 7. Royalty is required to be paid as per Section 9(1) of the Mines and Mineral (Development and Regulation) Act, 1957, which reads as under: The holder of a mining lease granted shall, notwithstanding anything contained in the instrument of lease or in any law in force at such commencement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under SAC Code 997337. From the holistic reading of the aforesaid clarification and notes it is quite clear that royalty is a charge by the State Government in lieu of consideration of the exploitation and extraction of the mineral resources by the lessee. The payment of royalty is a statutory levy in accordance with the provisions of Mines and Mineral (Development and Regulation) Act, 1957 against licensing services by the Government for right to extract minerals and the same is subject to levy of GST under Reverse Charge Mechanism. Now, we proceed to discuss the issue of taxability, classification and ate on contribution to the District Mineral Foundation (DMF), National Mineral Exploration Trust (NMET) and Goa Mineral Ore Permanent Fund Trust (GMOPFT). 8.1 Section 9B and 9C of Mines and Minerals (Development Regulation) Act, 1957 mandates that the miner shall contribute 30% of royalty to DMF, 10% of sale proceeds to Goa Mineral Ore Permanent Fund Trust (GMOPFT) (Constituted on state level) and 2% of royalty to the NMET. In this regard the applicant has argued that the amount paid to the said Funds cannot be treated as consideration in course or furtherance of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinuity or regularity of such transaction; d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; f) admission, for a consideration, of persons to any premises, g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; h) services provided by a race club by way of totalisator or a license to book maker in such club; and i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities; 8.3. As already discussed M/s. Cosme Costa are engaged in mining and extraction of iron ore in Goa. Thus the activities of M/s. Cosme Costa, squarely fall under the definition of business as stipulated above. For this mining activity, they are also duty bound under Section 9B and 9C of the Mines and Minerals (Development Regulation) Act, 1957 for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Zilla Parishad, a District Board and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund; (d) (e) The NMET has been constituted by the Central Government and the DMF and GMOPFT have been constituted by the Goa Government under the provisions of Mines and Minerals (Development and Regulation) Act, 1957 with the objective of management of Local Fund . Therefore, these are covered under the definition of the Local Authority . It has already been held that the activities carried out by the said trusts are in relation to the business and the same are classifiable under SAC Code No. 997337 which covers Licensing services for the right to use minerals including its exploration and evaluation . There is no ambiguity that Royalty and contribution to funds are made for applicant s mining business. By no stretch of imagination, it can be treated as donation. These contributions are statutorily mandatory and not voluntary. Applicant will not get legal rights to extraction which is the reciprocal for these contributions which in case of failure to cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said notification has passed through several amendments and the GST rate against relevant entry of Sl. No. 17 was amended vide Notification No. 27/2018 (w.e.f. 01.01.2019). The amended texts of the notification are as under: Sl.No. Chapter, Section or Heading Description of Service Rate (%) Condition 17 Heading 9973 (Leasing or rental services with or without operator) (i) (viii) Leasing or rental services with or without operator, other than (i),(ii),(iii), (iv),(v),(vi),(vii) and (viia) above 9 - From the above, it may be concluded that till 31.12.2018 the rate of GST on the impugned services was applicable at the rate of tax as applicable to like goods involving transfer of title of goods i.e. 5% in the case of iron ore, the goods supplied by the applicant, and the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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