2020 (12) TMI 1314 - AAR - GST

Inclusion of NMET and DMF contributions in GST under Reverse Charge Mechanism

The contributions to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) were deemed as consideration towards the supply of ... Classification of supply - consideration towards supply of mining service by Andhra Pradesh Government or not - contribution to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) - Inclusion of the amount for purpose of value of supply chargeable to GST under the Reverse Charge Mechanism in the hands of the applicant, i.e., service recipient? - HELD THAT:- The charges levied under MMDR Act are meant to be the charges levied under any law other than the GST Act. Thus, the payments made to DMF and NMET are very well includible under the ‘value of supply’ in addition to the royalties paid and can be called a ‘total consideration’ received for granting mining and leasing rights - the argument of the applicant that Royalty is only a measure of NMET and DMF contributions and cannot be equated with NMET and DMF and that NMET and DMF are not in respect of single supply of service i.e. licensing that warrants clubbing of all amounts i.e. Royalty, NMET and DMF under Section 15 of the GST law for the purpose of valuation does not hold good. The service provided is only the license to extract mineral ore and also the right to use such minerals extracted is a single service where the consideration is payable under three heads and in case any one of the payments is not made, the service provider, that is the Government would not issue the permit to use the mineral ore so extracted. Hence it forms the value of the supply under Section 15 and the charges for DMF and NMET being compulsory payments, would only amount to application of the amounts paid and still would form the value of the taxable services - It is also inferred that the service is a single service, there are no separate service providers for royalty, DMF and NMET and in all cases the Government which has provided the license to mine mineral ore and permitted the use of such mineral ore mined would be the person who has provided the service. Thus, the contributions to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) qualify as consideration towards supply of mining service by Andhra Pradesh Government and they being includible under value of supply, are chargeable to GST under the Reverse Charge Mechanism in the hands of the applicant, i.e., service recipient. Issues Involved:1. Whether contributions to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) qualify as consideration towards supply of mining service.2. Whether such contributions are includible for the purpose of value of supply chargeable to GST under the Reverse Charge Mechanism (RCM) in the hands of the applicant.Issue-wise Detailed Analysis:1. Qualification of Contributions as Consideration:The applicant argued that contributions to NMET and DMF are statutory obligations under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR) and not in lieu of any supply of service by the Government. They contended that these contributions are not consideration for any particular service, as they are collected under statutory powers and do not involve quid pro quo. The applicant referenced Section 2(31) of the CGST Act, which defines 'consideration' in relation to the supply of goods or services, and argued that contributions to NMET and DMF do not meet this definition.The authority, however, found that the activities undertaken by the trusts for the welfare of affected families can be treated as a vocation, satisfying the definition of 'business' under GST law. Hence, the amounts received by the trusts can be called consideration, as the recipient and payer of the consideration do not need to be the same under GST. Therefore, contributions to NMET and DMF qualify as consideration towards the supply of mining service.2. Inclusion in Value of Supply and GST under RCM:The applicant argued that contributions to NMET and DMF should not be included in the value of supply chargeable to GST. They stated that these contributions are statutory levies and not consideration for any service provided by the Government. The applicant referenced the Supreme Court decision in Federation of Indian Mineral v. Union of India, which deliberated on the validity of DMF contributions in the context of taxation.The authority, however, determined that contributions to NMET and DMF are includible in the value of supply under Section 15 of the CGST Act. Section 15(2) specifies that the value of supply shall include any taxes, duties, cesses, fees, and charges levied under any law other than the GST Act. Thus, payments made to DMF and NMET are includible in the value of supply in addition to royalties paid, forming the total consideration for granting mining and leasing rights.The authority concluded that the service provided is the license to extract mineral ore and the right to use such minerals, which constitutes a single service. The consideration for this service is payable under three heads: royalty, NMET, and DMF. Failure to make any of these payments would result in the Government not issuing the permit to use the extracted mineral ore. Therefore, all payments form the value of the taxable service.Ruling:The contributions to NMET and DMF qualify as consideration towards the supply of mining service by the Andhra Pradesh Government. Being includible under the value of supply, these contributions are chargeable to GST under the Reverse Charge Mechanism in the hands of the applicant, i.e., the service recipient.