TMI Blog2022 (5) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment of India has allotted the Mines to Karnataka Power Corporation Limited (KPCL) for mining of coal, to be used only for captive purpose in generation of power by the KPCL. The fact that the KPCL has been given the authority as the owner of the Mines is reflected in Article 5.7.1 of the impugned Agreement which states that, Subject to the provisions of this Agreement, the Authority (i.e. KPCL) shall be the Owner of the Mines for the purposes of the Mines Act, 1952. Thus, the said Article of the Agreement clearly proves that the owner of the coal is KPCL and not the applicant. Therefore, there is no supply of coal by the applicant, purely because the applicant neither has any ownership rights on the coal nor has any rights to sell the coal that has been excavated by it. Hence, the applicant is involved in supply of services in the instant case (as seen from the Scope of Supply in the Agreement) and there is no supply of coal by the applicant - thus, the impugned activity carried out by the applicant is supply of services and not supply of goods. Under which Service Accounting Code (SAC) does the impugned supply fall under? - HELD THAT:- The impugned services, related to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Authority. In the subject case, it is found that the applicant (supplier of service) and KPCL (recipient of service) are not related persons and price is the sole consideration for the supply - there is no amount that the supplier i.e the applicant, is liable to pay in relation to the impugned supply which has been incurred by the recipient i.e. KPCL of the supply and not included in the price actually paid or payable for the services - none of the provisions of Section 15 are attracted in the subject case with respect to amounts towards Royalty, MMDR, DMF Fund and Reserve Price, payable and paid by KPCL directly to the concerned Governmental Authority of Maharashtra and therefore the said amounts are not includible in the Value of Supply for the purpose of levy of GST. A perusal of the impugned agreement (relevant Articles discussed above), reveals that the components like Royalty, MMDR, DMF fund Cess, Reserve Price are not at all liable to be paid by the supplier of service, in this case, the applicant and further, the said components are liable to be paid exclusively by KPCL who is the recipient of the impugned supply. Thus KPCL is incurring the expenses towards the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itation charge] are clearly distinguishable and separately identifiable and therefore the tax treatment under GST shall also be different and separate? If the contract is treated as divisible, should: (a) In so far as Excavation of coal is concerned, whether the Applicant should raise a separate invoice on KPCL Karnataka for mining support services under HSN 9986 or under any other head and charge GST under MGST and CGST each or charge IGST keeping in mind that entire excavation activity takes place in Maharashtra. b) in so far as Transport Service is concerned, whether the Applicant should raise a separate invoice as Goods Transport Services under HSN 9965 or HSN 9967 or under any other head within the State of Maharashtra on KPCL Karnataka and charge GST under MGST and CGST each or charge IGST keeping in mind that this charge relates to transport of mined coal from the mining site to the loading point which happens entirely in the State of Maharashtra. (c) In so far as Handling Charges (incl. Additional Handling Charges) are concerned, whether the Applicant should raise a separate invoice as Business Support Service under HSN 9985 or under any other head withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited ( KPCL ) by the Govt. Of India, for mining of coal and to be used only for captive purpose in generation of power BY KPCL. 2.2 Vide an Agreement dated 19.03.2021, the Applicant has been tasked by KPCL with developing and operating the Mine excavating coal delivering it to KPCL for generation of power. The Agreement lays down detailed guidelines terms conditions which governs the rights of KPCL the Applicant and also lays down various parameters of performance of the Applicant. It is this activity of the Applicant and the Agreement which is the basis for the subject issues. 2.3 KPCL has been allotted Baranj I-IV, Manoradeep and Kiloni Coal Blocks (hereinafter referred to as Mines ) situated in Chandrapur district of Maharashtra. Applicant has been appointed as the Operation Maintenance contractor to undertake development Operation of above-mentioned coal mines for 25 years is required to excavate coal deliver it to KPCL s Karnataka power plant. 2.4.1 The scope of the project includes : Development of Mines on the Sites, Operation maintenance of Mines ; Excavation, Washing (if required) Delivery of Coal ; Performance fulfilment of all other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charging IGST @ 5%. 2.6 The Applicant conveyed to KPCL that, the instant delivery of mined coal to KPCL is not supply-sale of coal but is provision of mining support services. However, KPCL has stated that the impugned supply by the Applicant to KPCL is sale of coal and should be subject to GST under HSN 2701. 2.7 Applicant submits that, the title of KPCL on the coal is absolute exclusive the Govt of India has allotted the Mine to KPCL for mining coal only for its captive use in the Thermal Power Plant. Any coal mined supplied to KPCL in excess of its requirement shall be sold by KPCL to Coal India Ltd. 2.8 The relationship between KPCL Applicant is of a service recipient a service provider not of a buyer-seller in as much as KPCL always remains the owner of the coal and remains in complete contral over the mines and its operations. All that applicant has undertaken is to render service to KPCL in excavating and delivering coal from mines to KCPL s site. 2.9 Applicant relies on the observation made by the Ra jasthan Authority for Advance Ruling vide Ruling No. RAJ/AAR/2020-21/03 dated 14.05.2020, in the case of M/s KSC Buildcon Private Limited. 2.10 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Coal and the Applicant should raise its invoice as sale of coal under HSN 2701 charging IGST @ 5%. 2.15 To obtain certainty on the issue, the Applicant conveyed to KPCL its stand that the instant delivery of mined coal to KPCL is not supply-sale of coal but is provision of mining support services and requested to opt for an Advance Ruling on the matter. 2.16 It is under these circumstances that invoices were raised by the Applicant, under protest, as supply of coal and not as mining support services. The Applicant is of the view that the activities carried out by it squarely falls under the Mining Support Services and should be taxable to 18% GST Since the impugned Contract is for supply of services (mining support services) 2.17 The Applicant submits that the Hon ble Bench to examine the relevant clauses of the impugned agreement, a perusal of which, reveals that the relationship between KPCL and the Applicant is of a service recipient and a service provider and not of a buyer-seller. APPLICANT SUBMISSION DATED 11.04.2022 Query raised during the course of hearing held on 29-03-2022 2.18 The jurisdictional officer has submitted that the invoices ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.4 As per the ledger account of KPCL as maintained in the books of the Applicant for F.Y. 2021-22 neither have the said amounts been received by us nor have the said amounts shown as receivables in our books. It is reiterated that, the said amounts are not due to us and are neither being claimed by us presently nor will be claimed at any time in future. Further, no liability on account of any of the aforesaid Govt. Payments are recognised in the books of the Applicant. 2.19.5 In this context, the Applicant relies on Section 15 (1) of the CGST Act as per which, the transaction value (value of supply) on which tax is required to be paid is the price payable or actually paid to the supplier of service (applicant) by the recipient of service (KPCL). 2.19.6 In the instant case the amounts towards Royalty, etc. as mentioned above are payable and paid by KPCL to the Govt of Maharashtra. The said amounts are neither payable nor paid to the Applicant. Therefore, the said amounts cannot and should not be included in the transaction value for taxable purposes in view of Section 15 of the CGST Act. 03. CONTENTION - AS PER THE CONCERNED OFFICER: The jurisdictional Officer mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any law for the time being in force (Excluding SGST, UTGST and the GST (Compensation to States) Act, if charged separately by the supplier;), hence the Royalty other charges mentioned under subtotal (B), are part of value of supply taxable. 3.3.3 As per clause 6.1.3 of the impugned agreement, it has been agreed that KPCL, shall pay directly to the Govt., all taxes, levies, duties Royalties, including all statutory charges in respect of excavation delivery thereof. However, Applicant being Mine Operator, undertakes actual excavation of coal on behalf of KPCL possess rights for actual excavation by virtue of the Mining Agreement with KPCL therefore bears liability to pay royalty other charges. 3.3.4 Moreover, Clause (b) of subsection (2) of Section 15 provides that any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply whether or not included in the price shall be the part of Value of Supply. Therefore, components like Royalty, MMDR, DMF fund Cess, Stowing Excise duty, Reserve Price, etc. are required to be considered for determining the transaction price. 04. HEARING 4.1 Prel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke all such activities in relation to R R Obligations on behalf of KPCL including employing of PAPs in accordance with the R R agreement dated 15.12.2016 between the prior allottee and the Government of Maharashtra, as per the R R Policy and other Applicable Laws. 5.5 The first question raised by the applicant is whether the impugned activity carried out by the Applicant under the subject Agreement is supply of Goods or is a supply of Service and whether the said activity should accordingly be subject to GST under HSN 2701 (chargeable @ 5% as supply of coal) or under HSN 9986 (chargeable @ 18% as Support Services to Mining). 5.5.1 The applicant has submitted the impugned agreement dated 19.03.2021. From a reading of clause 3.1.1 of the Agreement, we find that, the applicant has been appointed as the mine operator to develop and operate and maintain the Mines and to excavate Coal for Delivery thereof, to KPCL for a period of 25 (twenty five) years commencing from the Appointed Date. 5.5.2 The scope of applicant s work/activity finds mention in Article 2.1 of the impugned Agreement and includes : Development of Mines on the specified Sites while conforming to the Specificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Condition 1 2 3 4 5 24 Heading 9986 (i) .. NIL -- (ii) Support services to mining, electricity, gas and water distribution 9 -- The impugned services, related to mining (mining of coal), was covered under Sr No 24 (ii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. 5.5.6 The Said Sr No 24 (ii) of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 was amended vide Notification No. 01/2018 - Central Tax (Rate) dated 25.01.2018 and the relevant Sr.No. 24 (ii) read as under: Sr.No. Chapter, Section or Heading Description of Service Rate (%) Condition 1 2 3 4 5 24 Heading 9986 (i) .. NIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other statutory charges payable in respect of excavation and delivery thereof directly to the Governmental Instrumentality. 5.6.2 The applicant does not show any liability on account of any of the aforesaid Government Payments (Royalty, MMDR, DMF Fund and Reserve Price) in its books. As per Article 5.6 of the Agreement, the applicant shall pay all GST and cess payable in respect of supply of goods (or) services under the impugned Agreement directly to the Government instrumentality and which shall be reimbursed by KPCL to the applicant. 5.6.3 Thus, from a reading of Articles 6.1.3 and 5.6 of the Agreement it is crystal clear that, GST is payable by KPCL to the applicant while all other taxes are payable and paid by the KPCL to the concerned Governmental Authority. 5.6.4 In this connection, we also refer to Article 29.1.2 of the Mining Agreement which clearly mentions that the KPCL shall directly pay Taxes and Duties other than GST and Compensation Cess, to the Government Instrumentality. 5.6.5 The jurisdictional officer has submitted that, the Value of supply is defined u/s 15 (1), and 15 (2) of the MGST/CGST Act 2017 and as provided under subsection 2 of Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e supply are not related; and fourthly the price is the sole consideration for the supply. 5.6.8 In the subject case, we find that the applicant (supplier of service) and KPCL (recipient of service) are not related persons and price is the sole consideration for the supply. 5.6.9 Further, from Article 6.1.3 and Article 29.1.2 of the Mining Agreement it is clear that the amounts towards Royalty, MMDR, DMF Fund and Reserve Price are payable by KPCL directly to Government of Maharashtra and which is being paid accordingly by KPCL. Therefore, the said amounts are not payable by KPCL to the applicant. From the submissions we also find that the said amounts are not paid by KPCL to the applicant. Thus the amounts towards Royalty, MMDR, DMF Fund and Reserve Price are neither payable nor paid to the applicant by KPCL. Hence the provisions of Section 15 (1) are not satisfied in the subject case. 5.6.10. From the submissions we also find that there is no amount that the supplier i.e the applicant, is liable to pay in relation to the impugned supply which has been incurred by the recipient i.e. KPCL of the supply and not included in the price actually paid or payable for the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Agreement is supply of Goods or is a supply of Service and should accordingly be subject to GST under HSN 2701 (chargeable @ 5% as supply of coal) or under HSN 9986 (chargeable @ 18% as Support Services to Mining)? Answer : The impugned activity carried out by the Applicant under the Agreement is supply of Service and will be chargeable @ 18% as Support Services to Mining under Heading 9986. Question 2: Since, in terms of Article 24.3 of the Agreement, the right and ownership on the Coal mined by the Applicant always vests in and remains with KPCL and the Applicant is only responsible for excavation, transport and delivery, and as such cannot transfer ownership to the coal, whether the applicant should raise an invoice under MGST/CGST or under IGST in as much as the Applicant is of the view that the entire activity takes place in the State of Maharashtra only. Answer: - Not answered in view of the fact that the said question has been withdrawn by the applicant. Question 3: Can the present contract be treated as a single consolidated contract or a divisible contract in view of the fact that four components of the contract (viz. Excavation of Coal, Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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