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TMI Blog2022 (6) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... ication any reference to chapter, section or heading shall be with respect to scheme of classification of services annexed to the notification. In this annexure, the service leasing or renting of goods is enumerated under group head 99732 - Under this group, the tariff item 997337 enumerates licensing services for the right to use minerals including its exploration and evaluation . This is the appropriate entry concerning royalty on mining. Hence the rate of tax of the residual entry is attracted on the royalty paid for mining at the rate of 9% CGST 9% SGST. The holder of mining lease shall also pay, to the District Mineral Foundation of the district in which the mining operations are carried under Section 9B of the MMDR Act, 1957 a sum in addition to the royalty either 1/3rd of such royalty or any other such amount in terms of Second Schedule of the MMDR Act - Similarly the holder of the mining lease shall also pay an amount of 2% of the royalty payable to the National Mineral Exploration Trust under Section 9C of the MMDR Act, 1957. Both these amounts are paid in addition to the royalty payable and in a proportion to the royalty paid for extracting minerals from a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination of the liability to pay tax on contributions made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) as per MMDR Act, 1957. 6. Personal Hearing: The Authorized representatives of the unit namely Sri S. Anantha Narayanan, CA AR and Sri B. Sridhar, DGM Finance attended the personal hearing held on 16-02-2022. The authorized representatives reiterated their averments in the application submitted and raised new contentions other than those raised in the application: 1. That, in their view tax rate on royalty should be the same as the tax rate on the goods which are mined. That, they would like ruling for the prospective period from the date of modified application, i.e., 01.01.2019 only. 2. That, a percentage of royalty earned by them is paid to District Mineral Foundation and National Mineral Exploration Trust as compulsory Contribution prescribed under MMDR Act 1957. That, in their view no tax is payable on such contribution on reverse charge by them. 3. That, they have reached this conclusion on point no.2 above for the following reasoning: a) That, reverse charge is payable on the consideration paid to State/Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a mining lease. The same is reproduced as under: Para 321: Nature of mining lease : A lease may be granted of land or any part of land, and since minerals are a part of the land it follows that a lease can be granted of the surface of the land and the minerals below, or of the surface alone, or of the minerals alone. It has been said that a contract for the working and getting of minerals, although for convenience called a mining lease, is not in reality a lease at all in the sense in which one speaks of an agricultural lease, and that such a contract, property considered, is really a sale of a portion of the land at a price payable by installments, that is, by way of rent or royalty, spread over a number of years. Para 322: Statutory definitions of 'mining lease'. In the Law of Property Act, 1925, 'mining lease' means a lease for mining purpose, that is, the searching for, winning, working, getting, making merchantable, carrying away or disposing of mines and minerals, or connected purposes, and includes a grant or licence for mining purposes; and 'lease' includes an underlease or other tenancy. In the Settled Land Act 1925 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the rent for the area leased (often called surface rent), dead rent and royalty. Since the mining lease confers upon the lessee the right not merely to enjoy the property as under an ordinary lease but also to extract minerals from the land and to appropriate them for his own use or benefit, in addition to the usual rent for the area demised, the lessee is required to pay a certain amount in respect of the minerals extracted proportionate to the quantity so extracted. Such payment is called royalty . It may, however, be that the mine is not worked properly so as not to yield enough return income, whether the mine is worked properly so as not to yield enough return to the lessor in the shape of royalty. In order to ensure for the lessor a regular income, whether the mine is worked or not, a fixed amount is provided to be paid to him by the lessee. This is called dead rent . Dead rent is calculated on the basis of the area leased while royalty is calculated on the quantity of minerals extracted or removed. Thus, while dead rent is a fixed return to the lessor, royalty is a return which varies with the quantity of minerals extracted or removed. Since dead rent and royalty are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enumerates leasing services for right to use intellectual property and similar products. Under this group, the tariff item 997337 enumerates licensing services for the right to use minerals including its exploration and evaluation . This is the appropriate entry concerning royalty on mining. Hence the rate of tax of the residual entry is attracted on the royalty paid for mining at the rate of 9% CGST 9% SGST. Further the holder of mining lease shall also pay, to the District Mineral Foundation of the district in which the mining operations are carried under Section 9B of the MMDR Act, 1957 a sum in addition to the royalty either 1/3rd of such royalty or any other such amount in terms of Second Schedule of the MMDR Act. Similarly the holder of the mining lease shall also pay an amount of 2% of the royalty payable to the National Mineral Exploration Trust under Section 9C of the MMDR Act, 1957. Both these amounts are paid in addition to the royalty payable and in a proportion to the royalty paid for extracting minerals from a contract of mining lease. Therefore they are consideration for the service of right to use minerals including its exploration and evaluation whic ..... 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