TMI Blog2019 (10) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... oundation of the district and to the National Mineral Exploration Trust as these payments are made under the statutory requirements of the Mines and Minerals (Development and Regulation) Act, 1957 which is taxable under GST. Taxes on the payment of royalty - payment made to District Mineral Foundation of the district and to the National Mineral Exploration Trust under reverse charge - HELD THAT:- Section 9(3) of the GST Act,2017 says, the Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. Since the Government (Central/state) has provided the land to the applicant on lease to carry out the mining activity , the Government(Central/state) becomes the supplier of the service and the applicant (business entity) is the recipient of the service. Therefore, as per the Notification No. 13/2017- Central Tax (Rate) dated 28.06.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strict in which the mining operations are carried out. This amount is paid in terms of Section 9B (5) of the Mines and Minerals (Development and Regulation) Act, 1957. 7. Apart from the above levies as per the provisions of Section 9C of the Mines and Minerals (Development and Regulation) Act, 1957, Central Government has established a National Mineral Exploration Trust, with an object to use the funds accrued to the Trust for the purposes of regional and detailed exploration in such manner as may be prescribed by the Central Government. The holder of a mining lease shall pay to National Mining Exploration Trust, a sum equivalent to two percent of the royalty paid in terms of the Second Schedule. Accordingly, the applicant states that he has made statutory contributions into the above funds vide the following demand drafts, copy of the deposits are enclosed as under. Demand draft details Amount (in Rs.) Deputy Director, Department of Mines Geology No. 398308 dated 05.05.2018 3,31,47,000 Deputy Director, towards District Mineral Fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions specified in Schedule III; or such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council. 10. As discussed above, the applicant states that he has made statutory contributions to two funds established, under the Mines and Minerals (Development and Regulation) Act, 1957 read with District Mineral Foundation Rules, 2016 and National Mineral Exploration Trust Rules, 2015, called the District Mineral Foundation Fund and National Mineral Exploration Trust Fund respectively. 11. The object of the District Mineral Foundation is primordially to work for the interest and benefit of the persons and areas affected by mining related operations in the districts. In respect of the National Mineral Exploration Trust, the object is primarily to use the funds accrued to the Trust for the purposes of regional and detailed exploration. 12. In this regard, the applicant has submitted that the above payments are made as a percentage of the royalty paid to the Government s exchequer. Herein it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the tax in relation to the supply of such goods or services or both. 19. In the present case, the payments made in form of contributions to NMET and DMF, and for cases wherein tax is payable under reverse charge, attention is drawn to Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017. Relevant SI. No. 5 is extracted below for ease of reference: SI.No. Category of supply of Services Supplier of service Recipient of Service (1) (2) (3) (4) 5 Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (1) renting of immovable property, and (2) services specified be low- (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 out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2016 [Entry 56 refers}. However, the said exemption does riot cover services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994. Further, in case of continuous service, the exemption shall be applicable where the gross amount charged for such service does not exceed ₹ 5000/-in a financial year. 4. It is also clarified that Circular No. 89/ 7/2006-Service Tax dated 18-12-2006 and Reference Code 999.01/23.8.07 in Circular No. 96/7/2007-ST dated 23.8.2007 issued in the pre-negative list regime are no longer applicable. 21. From the aforesaid table, the applicant states that, it can be inferred that the government has extended similar clauses of taxing as well providing exemption under service tax to the GST regime. It is submitted that as there is a payment to NMET and DMF as a percentage of the mineral/iron ore excavated and dispatched, the Applicant contends that the same is towards supply of goods. The reverse charge provisions for services envisaged under Section 9(3) read with Notification No. 13/2017- Central Tax (Rate) shall not be applicable in the instant case since there is no specific servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicant has submitted the following additional arguments.- i. As per Section 7 of the CGST Act 2017 it is clear that each supply must have a consideration and the in present case, there is no consideration, even if it assumed that there is a supply. In this regard, the Applicant contends that the definition of consideration is adopted from the Indian Contract Act, 1872 as provided under Section 2(d), as:- When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence or promise is called consideration for the promise ii. In light of the above provision, the Applicant submits that the payments like Royalty, NMET and DMF are statutory payment towards holding a mining license. Such payments are made to specific funds of the Government, by virtue of holding a mining license by the Applicant and the Government does not provide anything in return to the Applicant. iii. As per Section 15 of the GST Act, value of supply shall include any taxes, duties, cesses, fees and charges levied under any statute, other than GST. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Finance Act and lays downs a very important test i.e. nexus test . Relevant paragraph is extracted below:- ...For valuation of taxable service, provision is made in Section 67 of the Act which enumerates that it would be the gross amount charged by the service provider for such service provided or to be provided by him . Whether the value of materials/goods supplied free of cost by the service recipient to the service provider/assessee is to be included to arrive at the gross amount\ or not is the poser. On this aspect, there is no difference in amended Section 67 from unamended Section 67 of the Act and the parties were at ad idem to this extent. On a reading of the above definition, it is clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients:- a. Service tax is payable on the gross amount, charged:- the words gross amount only refers to the entire contract value between the service provider and the service recipient. The word gross is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word gross the Department does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f supply whatsoever. (2) Without limiting subsection (1), supply includes any of these:- (a) a supply of goods; (b) a supply of services; (c) a provision of advice or information; (d) a grant, assignment or surrender of real property; (e) a creation, grant, transfer, assignment or surrender of any right; (f) a financial supply; (g) an entry into, or release from, an obligation: (i) to do anything: or (j) to refrain from an act; or (k) to tolerate an act or situation; (l) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g). (3) It does not matter whether it is lawful to do, to refrain from doing or to tolerate the act or situation constituting the supply. viii. In this context, the applicant places reliance on the Goods Service Tax Ruling numbered as GSTR 2001/4 of the Australian Taxation Office which deals with the test of nexus in detail, and relevant paragraphs are reproduced below:- 81. It will not be sufficient for there to be a supply and a payment. GST is not payable on supplies unless they are made for consideration, and the other tests in section 9-5 are satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct nexus between supply and payment and from the above discussions, it is amply clear that no supply has been made by the Government, and the Applicant, as a mine license holder is obligated to make statutory payments to Government controlled funds. FINDINGS AND DISCUSSION 27. We have considered the submissions made by the applicant in their application for advance ruling as well as the submissions made by Sri. Harish Bindumadhavan, authorised Signatory of M/s JSW Steel Ltd., during the personal hearing proceedings before this authority and we have also considered the additional submissions made. We have also considered the issue involved, on which advance ruling is sought by the applicant, relevant facts and the applicant s interpretation of law. 28. The applicant is a manufacturer of Iron Steel Products and to fulfill the requirement of Iron ore M/s JSW Steel Limited was given an area to the extent of 33.21 hectares by the Government on lease basis for a period of 50 years to carrying out activities of mining. On extraction of the iron ore from lease area, the applicant has to discharge Royalty to the Government exchequer, equivalent to fifteen percentage of ave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Scheduled II to the CGST/KGST Act, 2017 lists activities to be treated as supply of goods or supply of services. Entry No. 2 of the schedule is with regard to the Land and Building and the entry is narrated as under:- a. any lease, tenancy, easement, licence to occupy land is supply of service This provision implies that leasing of Government land to the applicant to carry out the activity of the mining is a supply of service to the applicant. 32. From the above provisions it is observed that Government has provided the land on lease to the applicant to carry out the mining activity and in turn the applicant pays royalty along with the amounts paid to the District Mineral Foundation of the district and to the National Mineral Exploration Trust as specified by the Government. Applicant made these payments under the statutory requirements of the Mines and Minerals (Development and Regulation) Act, 1957. Here whether amount paid to the District Mineral Foundation of the district and to the National Mineral Exploration are to be included in the value of the service provided is discussed as follows. 33. Regarding the issue of DMF and NMET Contribution, the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Trust shall be such as may be prescribed by the Central Government. (4) The holder of a mining lease or a prospecting licence-cum-mining lease shall pay to the Trust, a sum equivalent to two percent of the royalty paid in terms of the Second Schedule, in such manner as may be prescribed by the Central Government. 33.3. On perusal of the above sections related to DMF and NMET, it is seen that both these payments are payable by a lessee in addition to the royalty and both the calculations are made on the basis of royalty. 34. In this context we see clause (a) of subsection (2) of the section 15 of the CGST/ KGST Act, 2017 which is narrated as under.- 15(2) The value of supply shall include a. any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than Central Goods and Services Tax Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier; Therefore from the above provision it is clear that, the value of the taxable supply of service not only includes the amount of royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 good*s or passengers. Central Government, State Government, Union territory or local authority Any business entity located in the taxable In view of the above provision in the instant case it is clear that since the Government (Central/state) has provided the land to the applicant on lease to carry out the mining activity , the Government(Central/state) becomes the supplier of the service and the applicant (business entity) is the recipient of the service. Therefore, as per the Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017 applicant is liable pay GST on the payment made to the District Mineral Foundation of the district and payment made to the National Mineral Exploration Trust on reverse charge basis. 36. In view of the above we rule as follows. RULING The Applicant is liable to pay GST under reverse charge, for the payment made towards NMET and DMF, in light of SI. No. 5 of the Notification No. 13/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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