TMI Blog2021 (1) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... tegorically state that royalty payment made towards Licensing services for exploration of natural resources is treated as supply of services. 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. Applicability of GST rate - HELD THAT:- In the present case, the mining rights so granted are covered under the sub-heading 9973 37 that specifies - Licensing services for the right to use minerals including its exploration and evaluation . Whether the license to extract mineral and also the right to use such minerals extracted is a leasing or rental service? - HELD THAT:- What is supplied by the Government is the lease of the right to extract and use mineral and that is not covered by any specific entries in the Serial No. 17 of the Notification and hence falls under the residual entry. We find that the applicant in its application has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and would attract GST rate 18% from the period of July, 2017 onwards. - GUJ/GAAR/R/68/2020 - - - Dated:- 17-9-2020 - SANJAY SAXENA AND MOHIT AGRAWAL MEMBER Present for the applicant : Shri Ativ Patel M/s Rachna Infrastructure Pvt. Ltd. B-405, Angel Complex, Nr. Oasis Hotel, Nr. Income Tax Railway Crossing, Navrangpura, Ahmedabad, Gujarat 380009 having a GSTIN : 24AABCR9791F1Z4, is a company registered under the provisions of Central Goods and Service Tax Act, 2017 filed an application for Advance Ruling under Section 97 of CGST Act, 2017 and Section 97 of the GGST Act, 2017 in FORM GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the SGST Act. 2. M/s. Rachna infrastructure Pvt. Ltd. is mainly engaged in business of constructing state and national highways, city roads and bridges. In addition to the main business, the applicant is also engaged in business of mining of Black trap in the State of Gujarat. Mineral calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment at District/ Sub-Treasury at Dhansura, Himmatnagar and in such manner as the Competent Authority may prescribe E-payment. 5. The applicant submitted that in compliance to the said lease agreement they have paid annual dead rent or royalty as the case may be; that Gujarat Govt. has transferred its right to use Black Trap Minerals for commercial purpose for a period of 20 years against the payment of royalty or dead rent as the case may be by executing Lease deed with the applicant. Further, the applicant is liable to pay royalty in respect of mining lease for the right to use minerals including its exploration and evaluation. Royalty is in the nature of periodical payments to be made by the applicant (Lessee) under his covenants in consideration of the various benefits granted by the State govt (lesser). Royalty is collected by the State Govt. from the applicant for right given to them to extract mineral and is payable based on quantum of mineral removed/consumed. 6. The Applicant seeks Advance Ruling on the following questions : What shall be the classification of service provided by the State of Gujarat to the applicant in accordance with Notification No. 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate) dated 28.06.2017 as amended, leasing or rental service , Point (iv) deals with transfer of right in goods without the transfer of tiltle and point No. (iii) deals with Transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; that point No. (iv) talks about without transfer of title, in their case the govt. has transferred title in goods along with transfer of right to use goods. Therefore, it is not applicable. On the basis of point No. (iii) above and if they go word by word it interprets as under : Transfer of the right to use any goods : In their case it is transfer of the right to Use Black Trap For any purpose : In their case it is for commercial/ business purpose. (whether or not for a specified period) : In their case it is for specified period i.e. 20 years. For cash, deferred payment or other Valuable consideration : In their case it is payment of Royalty. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual Deed Rent or royalty as the case may be for the lease. Further, the applicant is liable to pay royalty in respect of mining lease for the right to use minerals including its exploration and evaluation. Royalty is in the nature of periodical payments to be made by the applicant (Lessee) under his covenants in consideration of the various benefits granted by the State govt (lesser). Royalty is collected by the State Govt. from the applicant for right given to them to extract mineral and is payable based on quantum of mineral removed/consumed 17. The applicant has obtained Government land on lease for quarrying BLACK TRAP Material and in turn applicant is required to pay Annual Rent deed or Royalty as the case may be to the Government of Gujarat. The leasing of the Government land to the applicant is considered as supply of service, as per sub-section (1) of Section 7 of the CGST Act, 2017, which is narrated as under: 7. (1) For the purposes of this Act, the expression 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal films, sound recordings, radio and television programme and the like 997333 Licensing services for the right to reproduce original art works 997334 Licensing services for the right to reprint and copy manuscripts, books, journals and periodicals 997335 Licensing services for the right to use research and development products 997336 Licensing services for the right to use trademarks and franchises 997337 Licensing services for the right to use minerals including its exploration and evaluation 997338 Licensing services for right to use other natural resources including telecommunication spectrum 997339 Licensing services for the right to use other intellectual property products and other resources nowhere else classified From the above, it is seen that the nature of service received by the application is covered under the Service Accounting Code 9973 37 - Licensing ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or rental services, with or without operator, other than (i), (ii), (iii), (iv) and (v) above. Same rate of central tax as applicable on supply of like goods involving transfer of title in g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 2017 65 per cent of the rate of central tax as applicable on supply of like goods involving transfer of title in goods Note: Nothing contained in this entry shall apply on or after 1st July, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vii) Time charter of vessels for transport of goods. 2.5 Provided that credit of input tax charged on goods (other than on ships, Vessels including bulk carriers and tankers) has not been taken (please refer to Explanation no. (iv) (viii) Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi) and (vii) above. Same rate of central tax as applicable on supply of like goods involving transfer of title 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 - 22.3 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 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; beauty and physical well-being services; and other miscellaneous services including services nowhere else classified). 9 - 22.4 Coming to the issue whether the license to extract mineral and also the right to use such minerals extracted is a leasing or rental service, it is clear that what is supplied by the Government is the lease of the right to extract and use mineral and that is not covered by any specific entries in the Serial No. 17 of the Notification and hence falls under the residual entry. We find that the applicant in its application has submitted that their service may cover either in Sl. No. (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 - in which rate of GST applicable as Same rate of Central as on supply of like goods involving transfer of title in goods OR Sl. No. (viia) Leasing or renting of goods - in which rate of GST applicable as Same rate of central tax as on supply of like goods involving transfer of title in goods. Since, the service received by the applicant is not at all leasing of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Same rate of Central Tax as on supply of like goods involving transfer of title in goods. (viia) Leasing or renting of goods. Same rate of Central Tax as on supply of like goods involving transfer of title in goods. (viii) Leasing or rental services, with or without operator other than (i), (ii), (iii), (iv), (v), (vi), (vii) and (viia) above. 18 Discussion : 1. Heading 9973 of scheme of classification of services under GST includes Group 99733 : the licensing services for the right to use intellectual property and similar products . However, the rate notification No. 11/2017-C.T. (R), dated 28-6-2017, prescribes rate only for transfer or permitting the use or enjoyment of Intellectual Property Rights (IPR). No rate has been prescribed for transfer of intellectual property and similar products other than IPR. IPR, as held in several decisions of the Tribunal and the Courts, refers to rights in intellectual property protected by the relevant IPR law in force. Intellectual property not protected by IP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the rate of GST applicable to supply of like goods involving transfer of title over the goods but the rate of GST prescribed for lease of goods can t be made applicable for leasing of mining area conferring the right to extract and appropriate the minerals. The lease by Government not being a lease of any goods, the conditional rate of tax applicable to sale of like goods cannot be imported for prescribing the rate of GST applicable to leasing of mining area. Therefore, in view of the above discussion of GST Council it is clear that amendments have been carried out vide the aforesaid notification No. 27/2018- CT (Rate) Dated 31.12.2018 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. 24. We rely on the decision of the Hon ble Supreme Court of India in the case of W.P.I.L. Ltd. v. Commissioner of Central Excise, Meerut, U.P. [2005 (181) E.L.T. 359 (S.C.)] = 2005 (2) TMI 137 - SUPREME COURT which is also applicable to the present case, wherein a 3 Judges Bench of the Hon ble Supreme Court while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than IPR , the applicability of said residual entry (viii) would be from the date of Not. No. 11/2017-(Rate) Central Tax dated 28.06.2017 as the same view is held by Hon ble Supreme Court of India. Accordingly, 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 and would attract GST rate 18% {9% CGST+9% SGST} from the period of July, 2017 onwards. 26. In view of the foregoing, we rule as follows: RULING (i) What shall be the classification of service provided by the State of Gujarat to applicant in accordance with Notification No. 11/2017-CT (Rate) dated 28.06.2017 read with further amendments made to it? Ans . The activity undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services, with or without operator), as mentioned in the annexure at Serial No. 257 (Licensing services for the right to use minerals including its exploration and evaluation) sub-heading 997337 of Notification Number 11/2017-C.T. (Rate), dated 28-6-201 ..... 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