TMI Blog2019 (9) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... ses - Furthermore, this is a service which is provided by the Central Government to the applicant being a business entity, and is therefore liable to be paid by the recipient under reverse charge, in terms of Sr. No. 5 of Notification No. 13/2017 - CT (Rate) dated 28.06.2017. Hence, the said service is taxable under reverse charge basis. The services received by the applicant shall be classified under heading 997337. Whether the license to extract mineral ore and also the right to use such minerals extracted is a leasing or rental service? - HELD THAT:- It is clear that what is supplied by the Government is the service by way of license to extract and use mineral ores and that is not covered by any specific entries in the serial no. 17 of the Notification and hence falls under the residual entry- Since the transaction is between the State Government and the applicant and the services are supplied by the state government to the applicant which is a business entity, and the transaction being a supply not covered under the exception, the applicant being the recipient of such service shall have to pay tax on the said supply under reverse charge mechanism as per Notification No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of Mining lease under Licensing services for Right to use minerals falling under the heading 9973 and 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. 4. QUESTIONS RAISED BEFORE THE AUTHORITHY:- The following questions have been posted before the Authority:- 4.1. 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 involving transfer of title in goods ? 4.2. 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. 5. RECORD OF PERSONAL HEARING: Shree Ananthanarayanan S Counsel of the applicant for personal hearing and he reiterated the submissions already made in the application and attached submission. The Applicant argued the case as following- 5.1 Background of operations - NMDC Limited is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance ruling can be sought for following question under GST: (a) classification of any goods or services or both; Based on above, the Applicant requests to admit its application in respect of clarification sought on classification of service by way of royalty paid in respect of Mining Lease. Further, as per Section 97(2) of CGST Act, 2017, advance ruling can be sought for following questions under GST: (e) determination of the liability to pay tax on any goods or services or both; (g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term Based on the said Section, the Applicant wishes to seek clarification whether statutory contributions made to District Mineral Foundation (DMF) and National Mineral Exploration trust (NMET) as per MMDR Act, 1957 amounts to Supply and determination of liability to pay tax on such contributions made. 5.6 Classification of royalty paid in respect of mining lease under Licensing services for the right to use minerals including its exploration and evaluation falling under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial decisions have been summed up in the judgement delivered by the Supreme Court in the case of the India Cement Ltd., etc. v. State of Tamil Nadu, etc. (AIR 1990 SC 85) = 1989 (10) TMI 53 - SUPREME COURT . The case was primarily on the legality of the cess on royalty. However, the meaning and concept of royalty has also been discussed in the judgement in an incidental manner. Although royalty has not been explicitly defined, the Supreme Court held that royalty 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 a 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. 8. Further, the Applicant tried to draw attention to the Sectoral FAQ s published by CBEC wherein it is categorically stated that Royalty payment is made towards Licensing services for exploration of natural resources. The extract of the same is produced as under:- 9. The Government provides license to various companies including Public Sector Undertakings for exploration of natural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting cannot be extended to activities like exploration , extraction etc. Therefore, mining land which is used for purpose of extraction of minerals and by which the immoveable property cannot be used on as is basis, will not fall within the ambit of renting of immovable property . 14. Upon harmonious reading from the above, what is intended to be transferred is the right and title to the interest over immoveable property (i.e. mineral). Such an interest over immoveable property cannot be equated with Renting of Immoveable Property . 15. Further, the Applicant would like to quote Section 65(105)(zzzz) of Finance Act, 1994, which defines Immovable Property in relation of Renting of Immovable Property 16. As per the said Section, immovable property does not include vacant land solely used for agriculture, farming, forestry, animal husbandry, mining purposes . 17. In a nutshell, it can be stated that royalty is a charge by the owner of a mineral in consideration of the exploitation of mineral resources by the lessee. In any case, it cannot be considered as payment made for renting of immovable property. The payment of royalty is a statutory levy as per MMDR act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty paid towards mining rights of stone boulders taxable at 5% under reverse charge . The extract of the relevant para in stated below: the services for the right to use minerals including its exploration and evaluation, as per sr. No 257 of the annexure appended to notification no. 11/2017- CT (Rate), dated 28.06.2017 is included in group 99733 under heading 9973. Hence, it attracts the same rate of tax as on supply of like goods involving transfer of title in goods. As per notification no. 1/2017-CT (Rate), dated 28.06.2017 under the CGST Act, 2017 and the corresponding State Tax notification under HGST Act, 2017, Schedule - I the stone boulders extracted by the applicant attract 5% GST (2.5% CGST + 2.5% HGST) as covered under HSN 2516 (At Sr. No. 124 of the notification). Copy of the Advance Ruling is enclosed as Annexure -1 24. Based on the above, the Applicant wises to submit that the entries prescribing the rate of tax for the service code 9973 does not specifically cover the Licensing services for the right to use minerals including its exploration and evaluation and therefore it will be covered under the residuary entry leasing or rental services, with or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like to quote Section 7 of CGST Act, 2017. As per Section 7, supply includes: (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business 30. Therefore, it is to be noted that liability to pay will result only if all the following conditions are satisfied: There is a supply in terms of Section 7 The supply is in the course of or furtherance of business The supply is not exempt under Section 7(2) or Section 11(1) 31. In order to determine whether tax is payable on payment to District Mineral Foundation following has to be tested: Whether there is supply of goods or service by the trust to which such payment is made If at all there is a supply, whether such supply is in the course of or furtherance of business of the trust? Whether such supply is exempt under Section 7(2) or Section 11(1) 32. As stated above, the objective of DMF Trust is to mitigate adverse impact of mining, to work towards welfare and development of people inhabited near mining ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an authority or a board or any other body,- (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Government, with ninety per cent or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution. 37. Based on above, the Applicant wishes to submit that services provided by Governmental Authority is not covered under reverse charge and therefore the supplier is liable to charge GST and remit to the credit of Government. 38. It is to be noted that the trust established under Section 9B(1) of the MMDR Act does not fall under the definition of Government. The same is an independent non-profit body to carry out operations entrusted to it. Since the payment is not made to government, there is no requirement of payment of GST under reverse charge in terms of Notification 13/2017 - Central Tax (Rate). Contribution to National Mineral Exploration Trust 39. It is submitted that as per National Mineral Exploration Trust Rules, 2015 it is submitted that National Mineral Exploration trust (NMET) is a trust which was set up as a non-profit body for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould facilitate high growth in the mining sector. There is no service/supply made to the payee. The payment made by the Applicant is purely in the nature of contribution and cannot be regarded as consideration. 47. Further, as seen in Section 7, one also has to evaluate whether the supplier is in the course of business. It is pertinent to note 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. 48. Without prejudice to the above, the Applicant wishes to state that the liability to pay tax under reverse charge on the said payments will arise only if such trust/fund falls under the definition of Government or local authority. 49. As per Section 2(53) of CGST Act, 2017, government means Central Government and as per Section 2(53) of Madhya Pradesh GST Act, government means State Government . Further, the said trust does not fall within the definition of local authority which is defined under Section 2(69) of the CGST Act, 2017: local authority means- (a) a Panchayat as defined in clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 5%GST (2.5 % CGST + 2.5% HGST) as covered under HSN 2516 (At Sr. No. 124 of the notification). Based on the above, the Applicant wishes to submit that the entries prescribing the rate of tax for the service code 9973 does not specifically cover the Licensing services for the right to use minerals including its exploration and evaluation and therefore it will be covered under the residuary entry leasing or rental services, with or without the operator, other than (i), (ii), (iii), (iv) and (v) above , with applicable tax rate as the same rate of tax as applicable on the supply of like goods involving transfer of title in goods. Accordingly, in such cases, the relevant tax rate as applicable on the underlying natural resource would be applicable on the amount of royalty paid. Since, rough Diamond attracts 0.25% GST Rate, royalty paid for mining of rough Diamonds will attract 0.5% GST Rate. Submission in relation to Contribution to District Mineral Fund and National Mineral Exploration Trust 2. The Applicant wishes to submit that Section 9B and 9C of Mines and Minerals (Development Regulation) Act. 1957 mandates that NMDC shall contribute 30% of royalty to District M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the instant case, supply of service is missing and therefore the main test of levy of tax under Section 7 is not satisfied. No liability under Reverse charge 9. Without prejudice to the above, assuming but not admitting that there is a service provided by the trust in lieu of contribution made by the Applicant, the said service will not under notified services under Reverse charge. 10. As per Serial No. 5 of Notification 13/2017 - Central Tax (Rate), dated June 28. 2017, the recipient is liable to pay tax under reverse charge for following service: Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers. 11. It is to be noted that only services supplied by Central Government, State Government or loca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment made to trust cannot be linked to mining rights and cannot be included in the valuation of royalty. 16. Further, it is submitted that even the Sectoral FAQs only talk about royalty paid under Licensing services for the right to use minerals including its exploration and evaluation . Contribution to DMF/NMET Trusts are not mentioned under such services in FAQ. Therefore, the same is not liable to GST under reverse charge. 17. We request your good office to consider our above submissions and pass such other orders and directions as may be deemed proper and necessary. 6. CONCERNED OFFICER S VIEW POINT: The Concerned Officer in his view submitted that the service by way of granting of license to extract minerals is classified under Tariff Heading 99733 and the additional contributions made to DMF and NMET are nothing but additions to the royalty and shall be treated under addition of value of original supply. 7. DISCUSSIONS AND FINDINGS: The arguments and assertions made by the applicant along with supporting case law and the documents in support of such claims were studied and the following are noted: Regarding the first question of the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Group 99731 Leasing or rental services concerning machinery and equipment with or without operator Group 99732 Leasing or rental services concerning other goods Group 99733 Leasing services for the right to use intellectual property and similar products Since the service received by the applicant is not covered under Group 99731 or Group 99732 and hence it may get covered under Group 99733, i.e. leasing service for the right to use other similar products . 7.5 Additionally, as per the guidelines on the Scheme of Classification issued by the Central Board of Indirect Taxes and Customs, the classification of this service is clarified under the above mentioned heading, i.e. 99733 only. In this respect, the relevant entry from the guidelines is reproduced below: 997337 Licensing services for right to use minerals including its exploration and evaluation This service code includes licensing services for the right to use, mineral exploration and evaluation information, such as mineral exploration for petroleum, natural gas and non-petroleum deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e National Mineral Exploration Trust (NMDF), we note that: 7.9 The first question is whether such activity is liable to GST in the first place or not. In order for an activity to be charged to tax, it must fall within the meaning of supply as defined by Section 7 of the CGST Act, 2017. That, the Section 7 makes it clear that any activity shall be called supply only if it fulfills two important conditions: A) It should be in the course of or furtherance of business B) It should be for a consideration 7.10 In the case of contributions made to the DMF and NMET, it is important to note that the applicant is a recipient of this service, and not the supplier. Since it is an inward supply for the applicant and not the outward supply, it becomes important to judge the taxability of the transaction from the point of view of the supplier, and not the recipient. This stands true regardless of whether the given supply is subject to reverse charge mechanism. In other words, whether or not something is taxable must be examined from the point of view of the supplier, even if the tax liability thereon falls upon the recipient under Section 9 of the Act. 7.11 Thus, in the gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being provided by these trusts, but rather the payments made to these trusts is nothing but addition to royalty itself. That is to say, such payments are part of the original supply itself. The original supply, i.e. the mining rights given by the Central Government to the applicant was for a consideration payable in the form of royalty. It can be seen that the payments made to the DMF and the NMET are also part of the same royalty, and consideration paid in respect of the same supply. 7.14 For this purpose, the definition of consideration is important, and it is defined in the Act as follows: Consideration in relation to the supply of goods or services or both includes- (a) Any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; 7.15 The first question is whether the payment made to the DMF and NMET are in respect of, in response to, or for the inducement of, the supply of service by way of granting leasing rights ? For thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of such contributions, the government has transferred such responsibility and cost thereof to the recipient, i.e. the applicant in this case. It should be seen that under regular valuation rules of GST, if any amount which the supplier is liable to pay has been incurred by the recipient, then such amount would also be added to the value of supply. While there is no legal liability on the government in this case, the intent behind such contribution is the same, i.e. to pass on the liability of the supplier to the recipient. In other words, if no such funds were set up, then the government might be forced to increase the royalty itself in order to meet the cost for rehabilitation. Therefore, the intent behind such contributions is clear, and therefore it is nothing but an addition to royalty. 8. RULING 8.1 In respect of the first question raised by the Applicant regarding the classification of service by way of granting of license to extract minerals, we rule that the said service shall be classified under Tariff Heading 99733. 8.2 In respect of the second question raised by the Applicant regarding the taxability or otherwise of the additional contributions made to DMF a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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