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TMI Blog2022 (5) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... he Coal mined by the Applicant always vests in and remains with KPCL and the Applicant is only responsible for excavation, transport and delivery, and as such cannot transfer ownership to the coal, whether the applicant should raise an invoice under MGST/CGST or under IGST in as much as the Applicant is of the view that the entire activity takes place in the State of Maharashtra only. Question 3: Can the present contract be treated as a single consolidated contract or a divisible contract in view of the fact that four components of the contract (viz. Excavation of Coal, Transport Service, Handling Charges (incl. Additional Handling Charges) and Restoration and Rehabilitation charge] are clearly distinguishable and separately identifiable and therefore the tax treatment under GST shall also be different and separate? If the contract is treated as divisible, should: (a) In so far as Excavation of coal is concerned, whether the Applicant should raise a separate invoice on KPCL Karnataka for mining support services under HSN 9986 or under any other head and charge GST under MGST and CGST each or charge IGST keeping in mind that entire excavation activity takes place in Maharashtr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT FACTS: 2.1 The Applicant, M/s. Baranj Coal Mines Pvt. Ltd., a company with its registered office in State of West Bengal is a Mine Developer and Operator ("MDO") and is presently engaged in the developing and operating a Coal mine at Kiloni, District Chandrapur, Maharashtra ("the Mine"). This mine has been allotted to Karnataka Power Corporation Limited ("KPCL") by the Govt. Of India, for mining of coal and to be used only for captive purpose in generation of power BY KPCL. 2.2 Vide an Agreement dated 19.03.2021, the Applicant has been tasked by KPCL with developing and operating the Mine & excavating coal & delivering it to KPCL for generation of power. The Agreement lays down detailed guidelines & terms & conditions which governs the rights of KPCL & the Applicant and also lays down various parameters of performance of the Applicant. It is this activity of the Applicant and the Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission of supporting documents evidencing payment by the applicant. 2.5 Post signing of the Agreement, applicant started developing the mine & the first coal was mined & delivered to KPCL in March 2021 & Applicant raised its first invoice on 21.04.2021 for the period 20.03.2021 to 31.03.2021 for Rs. 77,76,106.71 towards mining of 3944 MT of Coal including IGST of Rs. 2,95,166.99 @ 5% under HSN 27011200 as Supply of Coal, since KPCL informed the Applicant vide its email dated 03.03.2021 that the instant delivery of coal was sale and supply of Coal and the Applicant should raise its invoice as sale of coal under HSN 2701 charging IGST @ 5%. 2.6 The Applicant conveyed to KPCL that, the instant delivery of mined coal to KPCL is not supply-sale of coal but is provision of mining support services. However, KPCL has stated that the impugned supply by the Applicant to KPCL is sale of coal and should be subject to GST under HSN 2701. 2.7 Applicant submits that, the title of KPCL on the coal is absolute & exclusive & the Govt of India has allotted the Mine to KPCL for mining coal only for its captive use in the Thermal Power Plant. Any coal mined & supplied to KPCL in excess of its requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrangement for Eight (8) coal blocks which also stood cancelled. Entire investment made by the Applicant in various coal blocks went down the drain. From 2014 till 2021, the Applicant was bleeding and has incurred losses in thousands of crores. Appointment of the Applicant as the MDO for the instant coal block of KPCL provided some breather to the Applicant and rekindled a hope for its survival. Accordingly, when the Mining Agreement was being negotiated, KPCL informed the Applicant vide its email dated 03-03-2021 that the instant delivery of coal by the Applicant to KPCL is sale and supply of Coal and the Applicant should raise its invoice as sale of coal under HSN 2701 charging IGST @ 5%. 2.15 To obtain certainty on the issue, the Applicant conveyed to KPCL its stand that the instant delivery of mined coal to KPCL is not supply-sale of coal but is provision of mining support services and requested to opt for an Advance Ruling on the matter. 2.16 It is under these circumstances that invoices were raised by the Applicant, under protest, as supply of coal and not as mining support services. The Applicant is of the view that the activities carried out by it squarely falls under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the same in the Applicant's books of accounts. However, since the invoices contain these aforesaid charges, all the Components of Govt Payments (as is collectively called) i.e. Royalty, MMDR, DMF Fund and Reserve Price are recorded at the first instance while recording the Invoice being raised upon KPCL by the applicant, but on the same day a simultaneous reversal entry is also taken in the books to repudiate the liability of Govt Payments since such liability is being discharged by KPCL and more so it is not the liability of the Applicant at all. 2.19.4 As per the ledger account of KPCL as maintained in the books of the Applicant for F.Y. 2021-22 neither have the said amounts been received by us nor have the said amounts shown as receivables in our books. It is reiterated that, the said amounts are not due to us and are neither being claimed by us presently nor will be claimed at any time in future. Further, no liability on account of any of the aforesaid Govt. Payments are recognised in the books of the Applicant. 2.19.5 In this context, the Applicant relies on Section 15 (1) of the CGST Act as per which, the transaction value (value of supply) on which tax is required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btotal (A) -, includes: Base Excavation Charges; Base Transportation Cost ; Handling Charges ; Additional Handling Charges ; and R & R Charges Sub-Total (B)- includes: Royalty (@14% on the value of G-9 Grade coal) ; MMDR 2% on Royalty ; DMF Fund 10% on Royalty ; and Reserve Price Sub-Total (C)- includes: IGST @5% and Clean Energy Cess (GST Compensation Cess) 3.3.2 As provided under Section 15 (2) of the CGST Act, 2017, the value of supply includes all taxes, to duties, cesses, fees & Charges levied under any law for the time being in force (Excluding SGST, UTGST and the GST (Compensation to States) Act, if charged separately by the supplier;), & hence the Royalty & other charges mentioned under subtotal (B), are part of value of supply & taxable. 3.3.3 As per clause 6.1.3 of the impugned agreement, it has been agreed that KPCL, shall pay directly to the Govt., all taxes, levies, duties Royalties, including all statutory charges in respect of excavation & delivery thereof. However, Applicant being Mine Operator, undertakes actual excavation of coal on behalf of KPCL & possess rights for actual excavation by virtue of the Mining Agreement with KPCL & therefore bears liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Applicant and the impugned Agreement which is the basis for the subject issues raised by the applicant. 5.4 The scope of the project is mentioned in the submissions made by the applicant and is not reproduced for the sake of brevity. Further, KPCL is also responsible for undertaking all Rehabilitation & Resettlement (R&R) Obligations, including procuring approval of the plan for rehabilitation & resettlement of PAPs (Project Affected Persons) and applicant has to undertake all such activities in relation to R&R Obligations on behalf of KPCL including employing of PAPs in accordance with the R&R agreement dated 15.12.2016 between the prior allottee and the Government of Maharashtra, as per the R&R Policy and other Applicable Laws. 5.5 The first question raised by the applicant is whether the impugned activity carried out by the Applicant under the subject Agreement is supply of Goods or is a supply of Service and whether the said activity should accordingly be subject to GST under HSN 2701 (chargeable @ 5% as supply of coal) or under HSN 9986 (chargeable @ 18% as Support Services to Mining). 5.5.1 The applicant has submitted the impugned agreement dated 19.03.2021. From a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be decided is under which Service Accounting Code (SAC) does the impugned supply fall under. 5.5.5 Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 notifies the rate of tax for supply of services under the CGST Act, 2017. The relevant provision of the said notification is reproduced as under: Sr. No. Chapter, Section or Heading Description of Service Rate (%) Condition 1 2 3 4 5 24 Heading 9986 (i)........ NIL -- (ii) Support services to mining, electricity, gas and water distribution 9 -- The impugned services, related to mining (mining of coal), was covered under Sr No 24 (ii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. 5.5.6 The Said Sr No 24 (ii) of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 was amended vide Notification No. 01/2018 - Central Tax (Rate) dated 25.01.2018 and the relevant Sr.No. 24 (ii) read as under: Sr.No. Chapter, Section or Heading Description of Service Rate (%) Condition 1 2 3 4 5 24 Heading 9986 (i).............. NIL -- (ii) Service of exploration, mining or drilling of petroleum crude or natural gas or both. 6 -- (iii) Support services to mining, electricit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. As per Article 5.6 of the Agreement, the applicant shall pay all GST and cess payable in respect of supply of goods (or) services under the impugned Agreement directly to the Government instrumentality and which shall be reimbursed by KPCL to the applicant. 5.6.3 Thus, from a reading of Articles 6.1.3 and 5.6 of the Agreement it is crystal clear that, GST is payable by KPCL to the applicant while all other taxes are payable and paid by the KPCL to the concerned Governmental Authority. 5.6.4 In this connection, we also refer to Article 29.1.2 of the Mining Agreement which clearly mentions that the KPCL shall directly pay Taxes and Duties other than GST and Compensation Cess, to the Government Instrumentality. 5.6.5 The jurisdictional officer has submitted that, the Value of supply is defined u/s 15 (1), and 15 (2) of the MGST/CGST Act 2017 and as provided under subsection 2 of Section 15, the value of supply includes all taxes, duties, cesses, fees and Charges levied under any law for the time being in force (Excluding the SGST, the UTGST and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;), and hence the Royalty and other charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Mining Agreement it is clear that the amounts towards Royalty, MMDR, DMF Fund and Reserve Price are payable by KPCL directly to Government of Maharashtra and which is being paid accordingly by KPCL. Therefore, the said amounts are not payable by KPCL to the applicant. From the submissions we also find that the said amounts are not paid by KPCL to the applicant. Thus the amounts towards Royalty, MMDR, DMF Fund and Reserve Price are neither payable nor paid to the applicant by KPCL. Hence the provisions of Section 15 (1) are not satisfied in the subject case. 5.6.10. From the submissions we also find that there is no amount that the supplier i.e the applicant, is liable to pay in relation to the impugned supply which has been incurred by the recipient i.e. KPCL of the supply and not included in the price actually paid or payable for the services. 5.6.11 We therefore find that, none of the provisions of Section 15 are attracted in the subject case with respect to amounts towards Royalty, MMDR, DMF Fund and Reserve Price, payable and paid by KPCL directly to the concerned Governmental Authority of Maharashtra and therefore the said amounts are not includible in the Value of Suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services to Mining under Heading 9986. Question 2: Since, in terms of Article 24.3 of the Agreement, the right and ownership on the Coal mined by the Applicant always vests in and remains with KPCL and the Applicant is only responsible for excavation, transport and delivery, and as such cannot transfer ownership to the coal, whether the applicant should raise an invoice under MGST/CGST or under IGST in as much as the Applicant is of the view that the entire activity takes place in the State of Maharashtra only. Answer: - Not answered in view of the fact that the said question has been withdrawn by the applicant. Question 3: Can the present contract be treated as a single consolidated contract or a divisible contract in view of the fact that four components of the contract (viz. Excavation of Coal, Transport Service, Handling Charges (incl. Additional Handling Charges) and Restoration and Rehabilitation charge] are clearly distinguishable and separately identifiable and therefore the tax treatment under GST shall also be different and separate? Answer: - Not answered in view of the fact that the said question has been withdrawn by the applicant Question 4: There are certain oth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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