APPEAL AGAINST RECTIFICATION OF MISTAKE ORDER IS NOT MAINTAINABLE

[Mr. M. GOVINDARAJAN]

Rectification of Advance Ruling

Section 102 of the Central Goods and Services Tax Act, 2017 provides that the Authority or the Appellate Authority may amend any order passed by it under section 98 or section 101 so as to rectify any error apparent on the face of the record, if such error is noticed by the Authority or the Appellate Authority on its own accord, or is brought to its notice by the concerned officer, the jurisdictional officer, the applicant appellant or the Authority within a period of six months from the date of the order.

No rectification which has the effect of enhancing the tax liability or reducing the amount of admissible input tax credit shall be made unless the applicant or the appellant has been given an opportunity of being heard.

Issue

The issue to be discussed in this article as to whether appeal can be filed against the rejection of the application for rectification of mistake with reference to the decided case law.

Case law

In re ‘NMDC Limited’ – 2019 (10) TMI 865 - AUTHORITY FOR ADVANCE RULING, KARNATAKA, the applicant is State-controlled mineral producer of Government of India. It is owned by the Government of India and is under the administrative control of the Ministry of Steel.   It operates Donimalai Iron Ore Mine in Donimalai in Ballari District and also operates a pellet plant adjacent to Donimalai Iron Ore Mine in Karnataka.  The applicant is required to pay royalty at 15% as per Section 9B of the Mines and Minerals (Development & Regulation) Act, 1957. Royalty is collected by the State Government from the business entities for right given to them to extract mineral and is payable based on quantum mineral removed or consumed.   The applicant shall contribute 30% of royalty to District Mineral Foundation and 2% of royalty to National Mineral Exploration Trust.

The applicant sought for advance ruling on the following questions-

• Whether the royalty paid in respect of Mining Lease can be classified as “Licensing services for Right to use minerals including its exploration and evaluation falling under the heading 9973 attracting GST at the same rate of tax as applicable on supply of like goods involving transfer of title in goods?
• Whether statutory contributions made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) as per MMDR Act, 1957 amounts to “Supply “ and whether the same is liable for GST under reverse charge?

The Authority for Advance Ruling ruled that-

• The royalty paid in respect of Mining Lease is a part of the consideration payable for the Licensing services for right to use minerals including exploration and evaluation falling under the Head 9973 which is taxable at the rate applicable on supply of like goods involving transfer of title in goods up to 31.12.2018 and taxable at 9% CGST and 9% SGST from 01.01.2019 onwards under the residual entries of Serial No. 17 of the Notification No.11/2017- Central Tax (Rate) dated 28.06.2017.
• The statutory contribution made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) as per MMDR Act, 1957 are also part of the consideration payable for the Licensing services for right to use minerals including exploration and evaluation.
• The supply is of Licensing services for right to use minerals including exploration and evaluation and the value of such supply of services includes royalty, DMF and NMET contributions.
• Since the supply of services by the Government to a business entity located in the taxable territory, are covered under Serial No. 5 of Notification No.13/2017-Central Tax dated 28.06.2017, the liability to pay tax is on the recipient of such services on reverse charge mechanism as the Licensing services for right to use minerals including exploration and evaluation are provided by the State Government to a business entity, i. e., the applicant.

The applicant filed an application before the Adjudicating Authority for rectification of mistake in the advance ruling as given above.    The applicant stated that the Advance Ruling Authority had not ruled as to whether or not the contributions towards DMF and NMET amount to supply in terms of Section 7 of the CGST Act and that the Authority had erred in considering the said payments as single payment whereas they are two different transactions.   The Authority examined the ROM application and concluded that the Authority had considered all the submissions and that there is no error / apparent mistake on the face of the record and hence the ROM application was rejected in terms of Section 98(2) of the CGST Act vide order dated 23.03.2020.

Against the said rejection order the applicant filed an appeal before the Appellate Authority for Advance Ruling [IN RE: M/S. NMDC LTD 2020 (10) TMI 854 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA].   The appellant submitted the following before the Appellate Authority for Advance Ruling-

• Payment of royalty is not a supply under GST and is not liable to GST.
•  The royalty is in the nature of periodical payments to be made by the lessee (Appellant) in consideration of the various benefits granted by the lessor (Government).
• The royalty is required to be paid at a certain percentage of average sale price on ad valorem basis.
• The royalty is collected by the State Government from the business entities for right given to them to extract mineral and is payable based on quantum of mineral removed or consumed; that royalty is ‘profit a pendre’. i.e. Share of profit received from land which is not under GST.
• The sharing of profit will not be a supply from one person to another.
• The royalty paid in respect of mining lease will be classifiable under SAC 997337 and will continue to be taxed at 5% even after the amendment to Notification  No 11/2017 -  Central Tax (Rate) vide Notification  No 27/2018 – Central Tax (Rate), dated 31-12-2018. 
•  Heading 9973 covers various types of leasing, rental, licencing services. However, the group under heading 9973 in the rate Notification largely covers right to use intangible property. 
•  the entries prescribing the rate of tax for the service code 9973 does not specifically cover the Licencing services for the right to use minerals including its exploration and evaluation and therefore it will be covered under entry '(viia) leasing or renting of goods' with applicable tax rate as the same rate as applicable on the supply of like goods involving transfer of title in goods.
•  The rate as applicable on the underlying natural resources would still be applicable on the amount of royalty paid and not the residual entry as held by the lower Authority.
• The contributions made to DMF and NMET are without any quid pro quo and hence no taxable supply is involved.
• The DMF and NMET are not for profit trusts.
• The levy of GST is attracted only when there is an activity undertaken at the behest of the service recipient and the same is in response to /for consideration.
•  Even assuming that GST is payable for any service received by the Appellant, the same is payable by the Trusts and not the Appellant under reverse charge mechanism.
• Subsequent to the issue of the advance ruling, they had applied for a rectification of mistake in as much as some issues were not addressed by the lower Authority. 
• The lower Authority rejected the ROM application and hence the same is merged with the original advance ruling and an appeal has been filed against the merged order.
•  The ROM application has been filed within the stipulated time and only after the ROM application was decided they have filed this appeal.

In view of the above submissions, the Appellant prayed that the advance ruling be set aside.

The Appellate Authority for Advance Rulings observed that the Appellant made an application to the Authority for rectification of mistake (ROM) in the advance ruling dated 21.09.2019. The ROM application was filed in terms of Section 102 of the CGST Act stating that the Authority had not given a ruling on whether the contributions made to DMF and NMET amounts to a supply in terms of Section 7 of the CGST Act and also that the Authority had erred in considering the payments as a single payment whereas they are two different transactions. This ROM application was rejected by the Authority vide order dated 23.03.2020, in terms of Section 98(2) of the said Act in as much as the Authority had considered all the submissions and pronounced a ruling on all questions of the applicant and there was no error/mistake which was apparent on record. It is against this rejection of ROM vide order dated 23.03.2020.

The provisions of section 98 make it clear that an appeal can be filed before the Appellate Authority only against an advance ruling pronounced in terms of Section 98(4). In this case, the advance ruling was pronounced in terms of Section 98(4).  An appeal is maintainable only against the said order dated 21.09.2019 within the statutory period of 30 days from the date of communication of the said order. However, no appeal has been filed before us against the advance ruling dated 21.09.2019. The Appellant contends that the order rejecting the ROM application merges with the original order and hence the appeal filed against the ROM rejection order dated 23.03.2020 is to be considered as an appeal against the original order dated 21.09.2020. The Appellate Authority for Advance Ruling rejected the said contentions of the appellant.

The Appellate Authority for Advance Rulings further observed that even in cases where a rectification of mistake application is admitted and a mistake apparent on record is corrected, the original order is not set aside. T he original order remains on record and only the mistakes are corrected therein. The principle of doctrine of merger will not apply in such cases.    The ROM rejection order does not merge with the original advance ruling order. The original advance ruling stands without any corrections. The appeal should have been filed by the Appellant against the advance ruling order dated 21.09.2019 within the period of 30 days from the date of communication of the said order.

Even assuming for the sake of argument to consider this appeal as an appeal against the advance ruling dated 21.09.2019, even then the statutory time limit for filing an appeal against the advance ruling order has long expired. This Appellate Authority for Advance Ruling being a creature of the statue is empowered to condone a delay of only a period of 30 days after the expiry of the initial time period for filing appeal and not empowered to condone any delay beyond what the statute permits.

The Appellate Authority for Advance Ruling dismissed the appeal as it is not maintainable.

Conclusion

From the above said discussions it may be inferred that no appeal shall lie against the order of rectification of mistake before the Appellate Authority.  The advance ruling will not merge with the order of rectification of mistake.  By means of rectification the advance ruling stands corrected.