TAXABILITY OF LICENSING SERVICES IN GST: APPELLATE RULING

[Dr. Sanjiv Agarwal]

The applicant filed application seeking an advance ruling on rate of GST payable by them under Reverse Charge Mechanism on royalty paid to Government for mining of Iron Ore for the period July, 2017 to December 2018.

The Advance Ruling Authority had examined the application but the members did not agree on the issue of advance ruling on the rate of GST applicable to past supplies transacted during the period from 01 07.2017 to 31.12.2018.

Central Tax officer was of the view that Ruling should be issued in relation to any activity being undertaken or proposed to be undertaken in the future but not already undertaken in the past. Hence, it was viewed that the present case of the Applicant does not come within the ambit of provisions of Section 97 of the CGST Act, 2017.

State Tax officer was of the view that section 97 (2) (b) of the Act, which provides for a ruling on the applicability of a Notification issued under the provisions of the Act also implicitly provides for issue of an Advance Ruling on the applicable rate of GST, since GST rates are prescribed by issue of Notification only. On the other hand, clause (a) of section 95 of the Act defines Advance Ruling as a decision to be provided by the authority or the Appellate Authority in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the Applicant. The said definition does not restrict the scope of issuing ruling in respect of future transactions only.

In view of the difference of opinion between the members of AAR, the matter was referred to AAAR, Odisha. Accordingly, AAAR, Odisha on reference by AAR pronounced the instant ruling as there was difference of opinion between members of AAR, Odisha. In the instant case, applicant had been granted mining lease for extracting of iron ore in Odisha by the State Government and accordingly is engaged in the business of mining and supply of iron ore As consideration for the mining lease with the license to extract iron ore from the lease area, the Applicant pays royalty to the State Government before removal of the minerals from the lease area. [IN RE: M/S. PENGUIN TRADING AND AGENCIES LIMITED - 2019 (11) TMI 479 - APPELLATE AUTHORITY FOR ADVANCE RULING, ODISHA].

The AAAR observed that in terms of Section 97 (2) of CGST/OGST Act, the question on which the advance ruling can be sought under the Act, inter-alia, includes classification of any goods or services or both, applicability of a notification issued under provisions of the Act and determination of the liability to pay tax on any goods or services or both. The broad objective for setting up of the AAR/AAAR is to provide certainty in tax liability in advance in relation to an activity being undertaken or proposed to be undertaken by the Applicant as well as to reduce litigation. The activity on which the Applicant sought an advance ruling is a continuous activity and pronouncing an order on such activity shall be within the jurisdiction of the Authority.

Further, the broad objective for setting up of the AAR/AAAR is to provide certainty in tax liability in advance in relation to an activity being undertaken or proposed to be undertaken by the Applicant as well as to reduce litigation. The activity on which the Applicant sought an advance ruling is a continuous activity and pronouncing an order on such activity shall be within the jurisdiction of the Authority.

On a conjoint reading of the Notification No. 27/2018-Central Tax (Rate) dated 31 12.2018, Minutes / Agenda / Proposal / Discussion of the GST Council, AAAR opined  that amendments have been carried out vide the aforesaid notification to clarify the legislative intent as well as to resolve the unintended interpretations. It is well settled that the legislative intent cannot be defeated by adopting interpretations which is clearly against such interpretations. Thus, the interpretation which defeats the intention of the legislature should be avoided.

The AAAR held that the licensing services for the right to use minerals including its exploration and evaluation received by the Applicant is taxable @ 18 % [9 % CGST and 9 % OGST] during July, 2017 to December, 2018.