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TMI Blog2019 (4) TMI 1449X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Determination 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. 2. Facts of the case:- I. The Applicant NMDC Limited is a state-controlled mineral producer of the Government of India. It is owned by the Government of India and is under administrative control of the Ministry of steel. It is India's largest iron ore producer and exporter producing million tons of iron ore from fully mechanized mines in Chhattisgarh. Pursuant to the agreement, NMDC Bacheli is required to pay royalty as per Mines and Minerals (Development & Regulation) Act, 1957. As per Section 9 of the said Act, NMDC is required to pay royalty @15%. The Applicant seeks clarification as to whether royalty paid in respect of Mining Lease can be classified under "Licensing services for the 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. II. Further Section 9B and 9c of Mines and Minerals (Development & Regulation) Act, 1957 mandates that NMDC shall contribute 30% of royalty to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is separate and distinct from land revenue and that it is not related to land as a unit. On the other hand, royalty is payable on the proportion of the minerals extracted and it has relationship to mining as also to the mineral won from the mine under a contract by which royalty is payable on the quantity of the mineral extracted. 3.3 As per the Sectoral FAQ's published by CBEC is that "The Government provides license to various companies including public sector undertakings for exploration of natural resources like oil, hydrocarbons, iron ore, manganese, etc. For having assigned the right to use the natural resources, the licensee companies are required to pay consideration in the form of annual license fee, lease charge, royalty, etc to the Government. The activity of assignment of rights to use natural resources is treated as supply of service and the licensee is required to pay taxation on the amount of consideration paid in the form of royalty or any other form under reverse charge mechanism" 3.4 They also cited the recent decision by Haryana Authority for Advance Ruling in the case of M/s. Pioneer partners, wherein it was held that Royalty paid towards mining rights o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al authority to a business entity excluding the specified services are chargeable to tax under reverse charge. Therefore, the Applicant wishes to seek clarification on liability to pay tax under reverse charge on such contributions made to the funds. 3.7 The objective of DMF Trust is to mitigate adverse impact of mining, to work towards welfare and development of people inhabited near mining area and to ensure sustainable livelihood. In order to carry out the said objective, the contribution to such fund is made by miners. It is pertinent to note that in lieu of such contribution made, there is no supply made by the trust to the Applicant (i.e., as quid pro for the service is not received). Further, as seen in Section 7, one also has to evaluate whether the supply is in the course of business. Further, that the trust is a non-profit body organization and not involved in the course of any business, trade or commerce. Based on the above, there is no supply made in terms of Section 7 therefore liability to pay tax does not arise. 3.8 As per Section 2(53) of CGST Act, 2017, government means "Central Government" and as per Section 2(53) of Chhattisgarh GST Act, Government means "State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning lease is a right vested in immovable property & hence not taxable; further they submitted that Royalty is 'profit a pander' that is share of profit received from land which is not taxable in GST. Without prejudice, it was submitted that royalty paid in respect of mining lease can be classified under "Licensing services for the right to use minerals including its exploration and evaluation falling under the heading 997337 attracting GST at the same rate of tax as applicable on supply. Further they relied on recent decision of Hon'ble Haryana Authority for Advance Ruling in case of M/s. Pioneer partners, wherein it was held that Royalty paid towards mining right of 'stone boulders' is taxable at same rate of goods under reverse charge. 4.2 Further with regard DMF and NMET they submitted that the contributions do not fall under supply and section 7 of CGST Act. However, if it is considered as supply the liability is on the trust and not on the applicant. They submitted in terms of Notification 13/2017 that liability under reverse charge is only when the supply is made by Central Government, State Government, Union Territory or local authority, as trust is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is owned by the Government of India and is under administrative control of the Ministry of Steel. M/s NMDC is India's largest iron ore producer and exporter, operating from three fully mechanized mines located in the State of Chhattisgarh and Karnataka. The operating mines of M/s NMDC include Bailadila Iron Ore Mine, Kirandul Complex, Distt. South Bastar, Dantewada (Chhattisgarh), Bailadila Iron Ore Mine, Bacheli Complex, Distt. South Bastar, Dantewada (Chhattisgarh), Donimalai Iron Ore Mine, Donimalai, Distt. Bellary (Karnataka) and Diamond Mining Project, Majhgawan, Panna (Madhya Pradesh). The applicant has sought Advance ruling in respect of aforesaid issues in relation to their Bailadila Iron Ore Mine, Bacheli Complex of M/s NMDC. 5.3 The applicant in their application seeking the advance ruling have further mentioned that Government of Chhattisgarh has issued in principle approval to NMDC Ltd (Bacheli) for renewal of Mining Leases viz. Deposit No.5 MI No.A1/203 for period of 4.5 years w.e.f. 11.09.2015 for an area of 540.05 ha and Deposit No. 10 MI No.A1/261 for period of 4.5 years w.e.f. 11.09.2015 for an area of 309.34 ha. Further that pursuant to the agreement, NMDC B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 13/2017 - Central Tax (Rate) dated 28.06.2017. As per Sl. No. 5 to the said Notification, services supplied by the Central Government, State Government, Union territory or local authority to a business entity attracts GST under reverse charge basis by the recipient of such services. Thus, entry No. (5) of the said notification states that the services supplied by the Central Government/State Government to a business entity will come under Reverse Charge Mechanism. The applicability thereof of GST rate for the aforementioned service is to be based on the classification of service. In the present case, the mining rights so granted is covered under the sub heading 997337 that specifies - 'Licensing services for the right to use minerals including its exploration and evaluation'. This is covered under entry no. 17 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017. On careful scrutiny of the notification, the aforementioned service is not covered in any of the specifically mentioned descriptions of entry no 17, and thereby it qualifies being categorized in the residual clause / serial number of entry no 17, wherein it has been specified that the rate applicable for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der business. II. that, DMF & NMET both are trust which shall be a non-profit body and the objective of the foundation as per Rule 5 of the said rules is as under to work for the interest and benefit of persons and areas affected by mining or mining related operations in such a manner as specified in these Rules. The objective of DMF Trust is to mitigate advance impact of mining. In order to carry out the said objective, the contribution to such fund is made by Miners. It is pertinent to note that in lieu of such contribution made, there is no supply made by the trust to the Applicant and accordingly in no manner such contribution made DMF/NMET can be regarded as payment towards services. The said sum is towards benefit of the interest and benefit of persons and areas affected by mining related operations, exploration activities and cannot be considered as consideration towards mining right. 6.3 Thus the main thrust of the applicant is that the amount given to both the trusts are not a commercial transaction in the course of business and that the contributions are made for public welfare activities. The term 'business' has been defined under section 2(17) of GST Act as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the above trusts, the business/rights of iron ore extraction would legally get hampered. Whereas, donations are always voluntary here in the instant case there is compulsory payment to both the trusts in proportion to the amount of royalty. Thus there hardly remains any doubt that the contributions paid by M/s NMDC to both the trusts are amounts being paid in the course of furtherance of its business activities only. 6.5 Rule 2 of Chhattisgarh District Mineral Foundation Trust Rules, 2015 stipulates the following definitions with regard to the contribution made by NMDC to DMF and NMET in addition to royalty. Rule 2(1)(d) "Collector" shall have the same meaning assigned to him/her under the Chhattisgarh land revenue code, 1959 (No. 20 of 1959) Rule 2(1)(e) "Contribution" means the contribution to be collected in the Trust from the holders of a mining lease or a composite license (prospection license-cum-mining lease) in case of Minerals or a mining lease or a quarry lease or a quarry permit in the case of Minor Minerals in the District at such percentage of the royalty to be paid in terms of the Second Schedule of the Act, as may be prescribed by the Central Government in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrusted by the Central Government or any other State Government with the control or management of a municipal or local fund". The activities undertaken by the DMF and NMET are the same as enumerated in 11th schedule (Article 243G) and 12th schedule (Article 243W) of the Indian constitution. 11th and 12th schedule supra reads as under:- Eleventh Schedule (Article 243 G) 1. Agriculture, including agricultural extension. 2. Land improvement, implementation of land reforms, land consolidation and soil conservation. 3. Minor irrigation, water management and watershed development. 4. Animal husbandry, dairying and poultry. 5. Fisheries. 6. Social forestry and farm forestry. 7. Minor forest produce. 8. Small scale industries, including food processing industries. 9. Khadi, village and cottage industries. 10. Rural housing. 11. Drinking water. 12. Fuel and fodder. 13. Roads, culverts, bridges, ferries, waterways and other means of communication. 14. Rural electrification, including distribution of electricity. 15. Non-conventional energy sources. 16. Poverty alleviation programme. 17. Education, including primary and secondary schools. 18. Technical tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties for drinking water, laying of piped water supply system. b) Environment preservation and pollution control measures :- effluent treatment plants, prevention of pollution of streams, lakes, ponds, ground Water, other water sources in the region, measure for controlling air and dust pollution caused by mining operations and dumps, mine drainage system, mine pollution prevention technologies, and measures for working or abandoned mines and other air, water & surface pollution control mechanisms required for environment- friendly and sustainable mine development. c) Health care: - the focus must be on creation of primary/secondary health care facilities in the affected areas. The emphasis should not be only on the creation of the health care infrastructure, but also on provision of necessary staffing, equipment and supplies required for making such facilities effective. To that extent, the effort should be to supplement and work in convergence with the existing health care infrastructure, the expertise available with the National Institute of Miners Health may also be drawn upon to design special infrastructure needed to take care of mining related illnesses and diseases. Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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