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TMI Blog2020 (9) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... sm. Hence, as per Section 13(3) of MP GST, the time of supply is date of payment as entered in the books of account of the recipient i.e. Government or the date on which the payment is debited in his(Applicant) bank account whichever is earlier. There is a difference between advance money and deposit amount. The advance is received toward goods or services to be supplied in future. On the other hand deposit money is received only as a security. It is generally not used by the supplier in the course of supply of goods or services. The upfront payment made by the applicant is adjusted toward the services to be supplied in future after commencement of excavating minerals which clearly shows that the said payment is and advances against the future payment, hence the section 2(31) of MP GST Act which speaks about the deposit is not applicable in the case of applicant. In this case the upfront payment is payable in three installments and after payment of third installment, the State Government shall grant the mining lease to the successful bidder - there is no clause of refund of that amount after allotment of mines on lease, hence the payment made to the state government is no mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACE6607L1ZQ (in the State of Madhya Pradesh). 3. The provisions of the CGST Act and MPGST Act are identical, except for certain provisions. Therefore, unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the MPGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or MP GST Act would be mentioned as being under the GST Act. 4. Brief facts of the case :- 4.1 The applicant is allotted with various mining sites across the country on lease for excavating minerals. 4.2 As per Section 13 of the MMDR Act, the Central Government has enacted Mineral (Auction) Rules, 2015 (hereinafter referred to as Mineral Rules) to regularize the grant of prospecting licences and mining leases in respect of minerals. 4.3 The Directorate of Geology and Mining, Government of Madhya Pradesh had issued a Notice Inviting Tenders for grant of Mining Lease (ML) for Bunder Diamond Block in Chhatarpur District of Madhya Pradesh. The copy of the Tender Document submitted by the applicant with Application as Annexure -1. 4.4 Once t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on along with payment of second instalment the preferred bidder shall be considered to be the successful bidder Third instalment being 80% of the upfront payment; Subsequent to execution of the Mine Development and Production Agreement, and upon such payment the State Government shall grant a mining lease to the successful bidder. 4.10 The clause 12.1 of the tender document categorically states that the aforesaid instalment payments are adjusted in full at the earliest against the amount payable as revenue share after commencement of production of mineral. The relevant extract of the same is reproduced hereunder: 12. Payments by the Successful Bidder 12.1. Upfront Payment The Upfront Payment paid by the Successful Bidder shall be adjusted in full at the earliest against the amount payable in accordance with the percentage of Value of Mineral Despatched quoted as the Final Price Offer on commencement of production wineral(s) as specified in MDPA. 4.11 After the upfront payment is made, the state government shall enter into an agreement with applicant for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.15 The Government of Madhya Pradesh vide letter dated 11.12.2019 ( Annexure-2 of Application ) declared the applicant as preferred bidder and requested the applicant to deposit the First instalment of Upfront payment of ₹ 27,52,48,440/ . The applicant vide letter dated 13.12.2019 ( Annexure-3 of application ) intimated the Government of Madhya Pradesh that the First instalment of Upfront payment of ₹ 27,52,48,440/- has been paid through RTGS on 13.12.2019. The applicant also requested the Government of Madhya Pradesh for issuance of Letter of Intent as prescribed in Mining (Auction) Rules, 2015. 4.16 On payment of upfront payment the Government of Madhya Pradesh vide letter dated 19.12.2019 ( Annexure-4 of application ) has issued the Letter of Intent in favour of the applicant. 4.17 Even though, the applicant is of the view that the aforesaid monetary payments are in the nature of compulsory extract of money and not for any supply . The applicant as an abundant caution has decided to discharge GST liability on the upfront payments, at the time when the same are adjusted against the revenue share, under reverse charge mechanism as applicable in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the upfront payment paid by the applicant is in the nature of deposit , tax liability would not arise immediately on the date of payment but only when the deposit amount is adjusted against revenue share in terms of section 2(31) of the MP GST Act, 2017. A.4 The applicant is supposed to receive licensing service from the State Government for extracting minerals for the block intended to be allotted to the applicant. The contracts are high value contracts. The contracts are spread over a longer period of time. Thus, in order to ensure that the applicant does not back out from the commitment, as per the Auction Rules, an amount is collected from the applicant on the name of Upfront Payment and thereafter on fulfilment of specified conditions the agreement for grant of lease would be entered. A.5 Further, the amount of so called upfront payment paid by applicant is shown as current assets in books of accounts of the applicant. The same is not booked as expenditure. The amount would have been proportionately transferred to expenditure for service as and when applicant would have been liable to pay Revenue Share to the State Government. A.6 The amount paid by app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aspect that the tender document use a different nomenclature. It is well settled that in taxation -laws, it is the substance and not the form of the transaction that is to be looked into. It is not necessary that the contract should be construed purely from the legal aspect only. In support of the aforesaid submission relied is placed on the judgement of Commissioner of Income Tax V/s Bhojraj Harichand (1946) 14 ITR 277 (Bom). THE UPFRONT PAYMENT IS IN THE NATURE OF DEPOSIT. THE STATE GOVERNMENT DOES NOT HAVE COMPLETE DOMINION OVER THE AMOUNT RECEIVED FROM THE APPLICANT. HENCE, THE SAME CANNOT BE TREATED AS ADVANCE. C.1 The state government does not have the complete dominion over the upfront payment received from the applicant. C.2 In case by any reason, the state government repudiate the contract for the reasons not on account of applicant s default, the state government is liable to refund the upfront payment to the applicant. Hence, the state government does not have complete dominion over the amount received from the applicant and hence the same cannot be treated as consideration for provision of service. The state government will have dominio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cavating minerals. For obtaining the mines, the applicant has made upfront payment to government and the said upfront payment is adjusted in full at the earliest against the amount payable to government production of minerals. The applicant raised the question whether the upfront payment made by the applicant to the State Government is in the nature of Deposit in terms of Section 2(31) of the MP GST Act, 2017 or is in the nature of advance paid, to determine the time of supply in terms of Section 13(3) of the MP GST Act, 2017 ? 8.3 The Section 2(31) of the MP GST Act, 2017 and Section 13(3) of MP GST Act, 2017 mentioned in the question raised by the applicant is reproduced below:- Section 2(31) consideration in relation to the supply of goods or services or both includes (a) any payment made or to he made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or service s or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 13(3) of MP GST, the time of supply is date of payment as entered in the books of account of the recipient i.e. Government or the date on which the payment is debited in his(Applicant) bank account whichever is earlier. 8.5 In respect of whether upfront payment is advance or deposit amount. We find that there is a difference between advance money and deposit amount. The advance is received toward goods or services to be supplied in future. On the other hand deposit money is received only as a security. It is generally not used by the supplier in the course of supply of goods or services. The upfront payment made by the applicant is adjusted toward the services to be supplied in future after commencement of excavating minerals which clearly shows that the said payment is and advances against the future payment, hence the section 2(31) of MP GST Act which speaks about the deposit is not applicable in the case of applicant. 8.6 We find that in this case the upfront payment is payable in three installments and after payment of third installment, the State Government shall grant the mining lease to the successful bidder. We have gone through the tender and other documents su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract. 8.9 From the facts and circumstances as discussed above, we find that there is clear provision in law for liability of GST in case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis in case of applicant under the provision of Section 13(3) of MP GST Act, 2017, therefore we hold that the applicant is liable to pay service tax from the date of allotment of mines on lease by the government as the payment made by the Applicant to state Government is an advance. 9. RULING 9.1 Considering the Arguments and submissions made by the Applicant in respect of the Question raised before this authority, it is ruled that the upfront payment made to the state Government is in the nature of advance from the date of allotment of mines on lease to the applicant for the purpose of determining the time of supply under GST Law as per the Section 13(3) of MP GST Act, 2017 and hence applicant is liable to pay service tax from the date of allotment of mines on lease by the government as the upfront payment made by the Applicant to state Government is an advance. 9.2 The ruling is valid subject to the provisions under Section 103(2) until an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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