2019 (6) TMI 1663 - AAAR - GST

Appellate Authority affirms GST liability on contributions to DMF & NMET under Reverse Charge Mechanism

In Re: M/s. P.K. Mahapatra, Assistant General Manager (Finance) NMDC Limited,

The Appellate Authority upheld the ruling of the AAR, confirming that contributions made to District Mineral Foundation (DMF) and National Mineral ... Liability to pay tax - contributions made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) as per Mines and Minerals (Development and Regulation) Act, 1957 - HELD THAT:- The activities undertaken by the trusts are under the control of the District Administration and different Government departments entrusted to it by the State Government in respect of the DMF and the Central Government in respect of the NMET respectively. Section 2(98) of CGST Act, 2017 stipulates regarding liability to pay tax under reverse charge, meaning therein that the liability to pay tax shall be on the recipient of goods/services rather than the supplier of goods/services - Further, Reverse Charge Mechanism is applicable for certain notified services as mentioned in Notification No, 13/2017 - Central Tax (Rate) dated 28,06.2017. As per SI. No. 5 to the said Notification, services supplied by the Central Government, State Government, Union territory or local authority to a business entity attracts GST under reverse charge basis by the recipient of such services. Thus, entry No. (5) of the said notification states that the services supplied by the Central Government/State Government to a business entity will come under Reverse Charge Mechanism. There appears no merit in the appeal filed by the appellant & thus the ruling of the AAR, Chhattisgarh is upheld. Issues Involved:1. Classification of royalty paid in respect of mining lease under GST.2. Liability to pay tax on contributions made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) under GST.Issue-wise Detailed Analysis:1. Classification of Royalty Paid in Respect of Mining Lease under GST:The appellant, NMDC Limited, sought an advance ruling on whether the royalty paid for the mining lease could be classified under 'Licensing for the right to use minerals including its exploration and evaluation falling under the heading 9973 attracting GST at the same rate of tax as applicable on supply of like goods involving transfer of title in goods.' The Authority for Advance Ruling (AAR) in Chhattisgarh ruled in the affirmative, agreeing with the appellant's view.2. Liability to Pay Tax on Contributions Made to DMF and NMET under GST:The appellant contested the AAR's ruling that contributions to DMF and NMET are liable to GST under the Reverse Charge Mechanism (RCM). The appellant argued that these contributions are not for any taxable supply and do not amount to consideration for supply of service, as the trusts do not qualify as 'government' or 'local authority'. Therefore, no GST should be applicable on these contributions.Appellant’s Contention:- The appellant relied on Section 7 of the CGST Act, 2017, which defines 'supply' and argued that contributions to DMF and NMET do not constitute a supply of goods or services for consideration.- The appellant cited the definition of 'service' under Section 2(102) of the CGST Act, 2017, arguing that the contributions are not performed at the behest of the service recipient and hence do not qualify as a service.- The appellant referenced the definition of 'consideration' under Section 2(31) of the CGST Act, 2017, asserting that the contributions do not meet the criteria for consideration as there is no activity undertaken by the trusts at the appellant's behest for consideration.- The appellant cited decisions from the Hon'ble CESTAT (Mumbai Bench) in the cases of Cricket Club of India v. Commissioner of Service Tax and Marmgoa Port Trust v. Commissioner of Customs, Central Excise and Service Tax, Goa, to support their argument that existence of consideration is essential for a taxable transaction.Personal Hearing:During the personal hearing, the appellant reiterated their arguments, emphasizing that contributions to DMF and NMET do not fall under the definition of supply and that the liability, if any, should be on the trusts and not on the appellant. They also highlighted that the contributions are defined as 'contribution' and not 'consideration' in the relevant rules.Legal Position, Analysis, and Discussion:- The Appellate Authority discussed the provisions of the CGST Act and CGGST Act, 2017, noting that contributions to DMF and NMET are made in the furtherance of business as defined under Section 2(17) of the CGST Act, 2017.- The Authority observed that the contributions are a part of the mining royalty paid in the course of furtherance of business and are not voluntary donations.- The Authority concluded that the contributions made to DMF and NMET are the monetary value of an act of forbearance, as the trusts undertake activities to mitigate the adverse impact of mining and promote exploration activities.- The Authority determined that the contributions amount to 'taxable supply' for consideration in the course of business under Section 7(1) of the CGST Act, 2017.- The Authority examined the definition of 'local authority' under Section 2(69) of the GST Act and concluded that DMF and NMET can be construed as local authorities as they are legally entitled to or entrusted by the Central or State Government with the control or management of a local fund.- The Authority noted that under Notification No. 13/2017 - Central Tax (Rate), services supplied by the Central Government, State Government, Union territory, or local authority to a business entity attract GST under reverse charge basis by the recipient of such services.Order:The Appellate Authority upheld the ruling of the AAR, Chhattisgarh, confirming that the contributions made to DMF and NMET by NMDC Limited are liable to GST under the Reverse Charge Mechanism. The appeal filed by the appellant was dismissed.