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2020 (9) TMI 1253 - AAAR - GSTClassification of goods - Product Sand - to be classified under Tariff Heading 2505 or not - taxable at 5% or not - reverse charge mechanism - serial number 64 of notification number 12/2017 Central/State Tax (Rate) dated 28.06.2017 - HELD THAT - Serial number 64 of the notification deals with assignment of right to use any natural resources. The instant case does not involve assignment of any right to use any natural resource. It is not in dispute that the Respondent engaged is in the business of exploiting sand from the river beds and that the right to explore for exploit/extract sand is assigned by the Government for consideration generally termed royalty. Upon extraction of the sand the Respondent is free to sell it in the market. The Merriam Webster Dictionary defines the word use as to do something with (an object machine person method etc.) in order to accomplish a task do an activity etc. . The activity of the Respondent is no way involved with using the sand extracted by it to accomplish any activity or any task. In fact the Respondent actually parts with the sand extracted by it rather than making any use of it. Once it is held that the activity in question does not fall within the scope of the said serial number 64 the claim for exemption made by the Respondent fails. The services provided by Government to the Respondent are classifiable under the heading 997337 viz. licensing services for the right to use minerals including its exploration and evaluation and that the rate of tax applicable to this activity is 18% with effect from 01.07.2017 itself - in the instant matter the services provided by the Government to the Respondent do not fall within the scope of serial number 64 of the impugned notification number 12/2017. The Respondent has all along been discharging his tax liability in the matter of the service under consideration in this matter at the rate of 5% on reverse charge basis. This fact is significant since it indicates that for a considerable period of time since the implementation of GST the Respondent has admitted that services provided by the Government to him in this matter are not exempt and hence do not fall within the ambit of the said serial number 64 of the impugned notification number 12/2017 (supra). Even his appeal before the Authority for Advance Ruling was limited to the issue of whether 5% was the rate applicable to the activity in question. There was no contention on behalf of the Respondent before the said Authority that the said activity was exempt from tax.
Issues Involved:
1. Classification of the service provided by the government for the right to mine sand. 2. Applicable GST rate for the service. 3. Applicability of exemption under Notification No. 12/2017. Issue-wise Detailed Analysis: 1. Classification of the Service Provided by the Government for the Right to Mine Sand: The Respondent, engaged in the business of mining sand, sought an advance ruling on whether they were correctly discharging their GST liability at 5% under the reverse charge mechanism. The AAR Bihar classified the service under SAC 997337, "Licensing services for the right to use minerals including its exploration and evaluation," and ruled that the service is taxable at 18% from 01/01/2019 onwards. The Joint Commissioner of State Tax, Sahabad Circle, Arrah, appealed this ruling, arguing that the service should be classified under SAC 999113, which pertains to "Administrative services provided by government offices concerning discovery, exploitation, and other aspects of minerals production," and should be taxable at 18% from 01/07/2017. The Appellate Authority for Advance Ruling (AAAR) upheld the classification under SAC 997337, confirming that the service involves licensing for the right to use minerals, including exploration and evaluation. 2. Applicable GST Rate for the Service: The AAR Bihar initially ruled that the service was taxable at 5% GST up to 31/12/2018 and 18% thereafter. The AAAR, however, clarified that the service has always been taxable at 18% from 01/07/2017, as per the GST Council's recommendations and Circular No. 164/2021. The circular clarified that the service of granting mineral exploration and mining rights falls under the standard GST rate of 18%, even if it was not explicitly mentioned in the rate schedule for the period 01/07/2017 to 31/12/2018. 3. Applicability of Exemption under Notification No. 12/2017: The Respondent argued that their service fell under the exemption provided by Serial No. 64 of Notification No. 12/2017, which exempts services provided by the government by way of assignment of the right to use any natural resource, assigned before 01/04/2016. The AAAR rejected this argument, stating that the service provided by the government was not merely the assignment of the right to use a natural resource but involved granting a license to mine and sell sand. The AAAR emphasized that the exemption under Serial No. 64 did not apply as the service did not involve the right to use the sand but rather the right to extract and sell it. Conclusion: The AAAR set aside the AAR Bihar's order and held that: (a) The service by way of grant of mining rights by the State Government is classifiable under heading 997337. (b) The service is covered by Serial No. 17 of Notification No. 11/2017 Central/State Tax (Rate), dated 28/06/2017. (c) The service is taxable at the rate of 18% (9% CGST + 9% SGST) from 01/07/2017 to 31/12/2018, and post 01/01/2019, it remains taxable at 18%.
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