2020 (12) TMI 1317 - AAR - GST

GST: Contributions to NMET and DMF by Andhra Pradesh Govt are taxable under Reverse Charge Mechanism

In Re: M/s. Andru Anantha Padma Koti Satyavathi

The Authority ruled that contributions to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) qualify as consideration towards ... Mining services or not - contributions to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR) read with National Mineral Exploration Trust Rules, 2015 ('NMETR') and Mines and Minerals (Contribution to District Mineral Foundation) Rules, 2015 ('MMCDMFR') - consideration towards supply of mining service by Andhra Pradesh Government, included for purpose of value of supply chargeable to GST or not - Reverse Charge Mechanism - 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 - 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. As per Entry No. 5 of Notification No. 13/2017-Central Tax (rate), GST on services supplied by Central Government State Government or Local Authority, to a business entity needs to be paid by such business entity under RCM. Issues Involved:1. Whether contributions to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) qualify as consideration towards supply of mining service by Andhra Pradesh Government.2. Whether such contributions are included for the purpose of value of supply chargeable to GST under the Reverse Charge Mechanism (RCM) in the hands of the applicant service recipient.Issue-wise Detailed Analysis:1. Qualification of Contributions to NMET and DMF as Consideration Towards Supply of Mining Service:The applicant, a mining leaseholder, is required to make contributions to NMET and DMF as per the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act). The applicant argued that these contributions are statutory levies and not consideration for any supply of service by the government. The applicant cited the Supreme Court's decision in Federation of Indian Mineral ... vs. Union of India, asserting that DMF contributions are statutory taxes and not considerations for service.However, the Authority noted that under Section 7 of the CGST Act, 2017, GST is applicable on any supply made for consideration by a person in the course or furtherance of business. The activities undertaken by NMET and DMF, such as welfare activities and exploration, are considered as services. These contributions, being mandatory payments, are seen as consideration for the supply of mining rights by the government. Thus, the contributions to NMET and DMF qualify as consideration towards the supply of mining services.2. Inclusion of Contributions to NMET and DMF in the Value of Supply Chargeable to GST under RCM:The applicant contended that NMET and DMF contributions should not be included in the value of supply for GST purposes, arguing that these contributions are separate from the royalty payments and should not be clubbed under Section 15 of the GST law. They emphasized that NMET and DMF are distinct from the royalty and are statutory obligations, not considerations for a single supply of service.The Authority, however, concluded that the contributions to NMET and DMF are integral to the mining service provided by the government. As per Section 15(2) of the CGST Act, the value of supply includes any taxes, duties, cesses, fees, and charges levied under any law other than the GST Act. Therefore, the payments made to NMET and DMF are includible in the value of supply along with the royalties paid. The service provided is a single service of granting mining and leasing rights, and the contributions to NMET and DMF form part of the total consideration for this service. Consequently, these contributions are chargeable to GST under the Reverse Charge Mechanism in the hands of the applicant.Ruling:The Authority ruled that the contributions to NMET and DMF qualify as consideration towards the supply of mining service by the Andhra Pradesh Government. These contributions are included in the value of supply and are chargeable to GST under the Reverse Charge Mechanism in the hands of the applicant, i.e., the service recipient.