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TMI Blog2020 (6) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... Panchmahal's Order No. AGG/QL/16750/1583 to 1587 dated 11.03.2010. The said order is pursuant to Lease Agreement signed between the applicant and Govt. of Gujarat. The said lease is operative for 10 years from 19.06.2010 to 18.06.2020. The applicant lease holder as per the terms and condition is required to pay Rent of Rs. 2,62,147/- per year or Royalty @ Rs. 250/- per Metric Ton, whichever is higher to the Govt. Of Gujarat. 4. The Applicant seeks Advance Ruling on the following questions : The applicant vide their letter dated 18.01.2019 has submitted re-drafted question on which seeks Advance Ruling and said questions are as under : (i) What is the classification of service provided in accordance with Notification No. 11/2017-CT (Rate) dated 28.06.2017 read with annexure attached to it, issued by the State Government to M/s Raj Quarry Works, for which royalty is being paid. Whether said service can be classified under Tariff Heading 9973, specifically under 997337 as Licensing services for the right to use minerals including its exploration and evaluation or as any other service? (ii) What is rate of GST on given services provided by State of Gujarat to M/s Raj Quarry Work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct GST rate as applicable on supply of minerals which is being extracted through such mining and same is to be paid by them as per RCM provision. 10. The applicant further submitted that therefore they understood that tax on Right to use service provided by the State government for exploration & mining of the minerals "BLACKTRAP"-material used for concrete mixing, that are classified under Tariff heading 2517 and GST leviable @ 5% (2.5%+2.5%). 10. The applicant has relied upon the decision of Haryana Authority on Advance Ruling reported in 2018 (18) GSTL 58 (AAR GST) in the case of M/s. Pioneer Partners wherein it was held that royalty paid towards mining rights of "stone boulders" taxable at 5% under reverse charge. 11. The applicant further submitted that Govt. Of India has issued a new Notification No. 27/2018-CT(Rate) dated 31.12.2018 interalia amending the earlier Notification No. 11/2017 dated 28.06.2017. Findings and Discussion 12. We have considered the submissions made by the Applicant in their application for advance ruling as well as the additional submissions made by authorised signatory, during the personal hearing proceedings on 10-01-2019 before this authority a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made without a consideration. (1A) where certain activities or transactions, constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. Further, the activities mentioned in the Entry No. 2 of the Schedule II relate to the activities to be treated as supply of goods or supply of services with regard to the Land and Building which is given as under: (a) Any lease, tenancy, easement, license to occupy land is supply of service Therefore, from the above leasing of the Government land to the applicant to carry out the activity of the quarrying is a supply of service to the applicant. 16. Regarding the classification of service received by the applicant Annexure to the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 have been referred. The said Annexure prescribes the Service Accounting Code for each type of services, details of the following services which are relevant to the transaction of the applicant is as under: Heading 9973 Leasing or rental services with or without operator Group 99731 Leasing or rental services concerning machiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hydrocarbons, iron ore, manganese, etc. For having assigned the rights to use the natural resources, the licensee companies are required to pay consideration in the form of annual license fee, lease charges, royalty, etc. to the Government. The activity of assignment of rights to use natural resources is treated as supply of services and the licensee is required to pay tax on the amount of consideration paid in the form of royalty or any other form under reverse charge mechanism." 18. Therefore, payment of rent/royalty is for license given to extract minerals and the amount of rent/royalty paid is based on the quantum of mineral extracted. Hence it is covered under Service Accounting Code 997337 - Licensing services for the right to use minerals including its exploration and evaluation, as it is a license to extract mineral ore and also the right to use such minerals extracted. 19. The applicability of GST rate for the aforementioned service is based on the classification of service. In the present case, the mining rights so granted is covered under the sub-heading 9973 37 that specifies - 'Licensing services for the right to use minerals including its exploration and evaluation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asing of goods but rather "Licensing services for the right to use minerals including its exploration and evaluation accordingly, it needs to be seen whether the same is covered under Entry No. (vi) of Serial No. 17 attracting the tax rate which is same as that applicable on the supply of like goods involving transfer of title in goods or under the Serial No. 35 which is related to the other miscellaneous services including services nowhere else classified. 19.2 Serial No. 17 of Notification No. 11/2017-Central Tax (Rate), dated 28-62017 was amended by Notification No. 31/2017-Central Tax (Rate), dated 13-102017 and entry no. (vi) was inserted, then after the amendment the entries look as under : Sl.No. Chapter, Section or Heading Description of Service Rate (per cent) Condition 17 Heading 9973 (Leasing or rental services, with or without operator) (i) ....... (ii) ...... (iii) Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Same rate of central tax as on supply of like goods involving tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itle in goods - 35 Heading 9997 Other services (washing, cleaning and dyeing services; beauty and physical well-being services; and other miscellaneous services including services nowhere else classified). 9 - 19.4 The Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017, Serial No. 17 was again amended by Notification No. 27/2018-Central Tax (Rate), dated 31-12-2018 and entry No. (viia) was inserted, then after the amendment the entries look as under : Sl. No. Chapter, Section or Heading Description of Service Rate (per cent) Condition 17 Heading 9973 (Leasing or rental services, with or without operator) (i) ....... (ii) ...... (iii) Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Same rate of central tax as on supply of like goods involving transfer of title in goods - (iv) ...... (v) ....... (vi) Leasing of motor vehicles purchased or leased prior to 1st July, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of any underlying goods. 19.6 On examining the Notification No. 27/2018-Central Tax (Rate), dated 3112-2018 which has been issued on the recommendations of the GST Council to further amend the Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017, we find that the same has been issued consequent upon decisions of the 31st GST Council meeting held on 22-12-2018. In this connection, for proper understanding of the issue, we have gone through the Agenda for 31st GST Council Meeting. Proposals recommended by Fitment Committee and Minutes of the Meeting of the Council available in GST Council website. Sl. No.'18' of Annexure-II of Agenda Item 6, which is relevant to the issue, is reproduced below: Sl. No. Proposal Comments 18. To clarify the GST rate applicable on right to use Intellectual Property and similar products other than IPR Recommendation : - It is proposed that to bring clarity, the residuary rate entry for Heading 9973 in notification No. 11/2017-C.T. (R), dated 28-6-2017 may be split in two parts as follows. Existing Proposed Description of Services Rate (%) Description of Services Rate (%) Sl. 17 Heading 9973 (Leasing or rental serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rate under pre-revised Entry No. (viii) does not apply to "Licensing services for the right to use intellectual property and similar products other than IPR". Since the impugned Service is also the "Licensing services for the right to use intellectual property and similar products other than IPR", the rate under pre-revised Entry No. (viii) is not applicable on it. Since the rate under newly created entry No. (viia) is same as that of pre-revised entry No. (viii), the impugned Service would not attract this rate and so would also not merit classification under the entry No. (viia). It is crystal clear that neither entry No. (iii) nor (iv) nor (viia) would cover the impugned Service. Point No. 2 ibid clearly mentions that for this Service (Licensing services for the right to use intellectual property and similar products other than IPR), the GST Council has carved out a new entry No. (viii) with the Service description "Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi), (vii) and (viia) above" with rate of tax as 18%. 20. The rate of GST applicable on lease of goods may have been prescribed as the rate of GST applicable to sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption for the first time in respect of parts of power driven pumps to be used in the factory tor manufacture of pumps but clarified the position and made the position explicit which was implicit. 21.1 The ratio of the aforesaid decision of the Hon'ble Supreme Court of India is squarely applicable to the instant case in as much as the amendment of the Notification No. 11/2017-( Rate)- Central Tax dated 28.06.2017 vide Notification No. 27/2018 (Rate)- Central Tax dated 31.12.2018 is of clarificatory notification and therefore impugned service 'Licensing services for the right to use minerals including its exploration and evaluation' which is classifiable under SAC 9973 37 will be covered under residual entry No. (viii) of the Notification No. 11/2017(Rate) Central Tax dated 28.06.2017 as amended vide Notification No. 27/2018-CT (Rate) dated 31.12.2018. Since the insertion of entry (viia) and (viii) vide said amendment Notification was being nature of clarification of the GST rate in respect of "right to use Intellectual Property and similar products other than IPR", the applicability of said residual entry (viii) would be from the date of Not. No. 11/2017-(Rate) Central Tax as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngers Central Government, State Government, Union Territory or local authority Any business entity located in the taxable territory 23.1 The answer of the applicant question whether they are covered under exclusion clause (1) of entry No.5 of the said Notification is that their service is "Licensing services for the right to use minerals including its exploration and evaluation" whereas entry No. 1 is "renting of immovable property". The applicant has taken a mine on lease for quarrying minerals from the Govt. Of Gujarat and said service is not service of Renting of immovable property therefore applicant does not fall under exclusion entry No. 1 of the said Notification. The transaction/service i.e. "leasing of mines" is between the State Government and applicant and the services are supplied by the State Government to the applicant which is a business entity. The subject transaction/service being a supply is not covered under the exceptions, 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. 13/2017-Central Tax (Rate), dated 28-6-2017. Hence the applicant is liable to pay GST under re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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