Appellate Authority Upholds 18% Tax on Sand Mining Service under SAC 997337

The Appellate Authority for Advance Ruling upheld the classification of the service provided by the government for the right to mine sand under SAC 997337, taxable at 18%. The applicable GST rate for the service was determined to be 18% from 01/07/2017 onwards. The exemption under Notification No. 12/2017 was found not applicable as the service involved granting a license to mine and sell sand, not merely the assignment of the right to use a natural resource. The service was held taxable at 18% from 01/07/2017 to 31/12/2018 and continued at the same rate post 01/01/2019.

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Issues Involved:
1. Classification of the service provided by the government for the right to mine sand.
2. Applicable GST rate for the service.
3. Applicability of exemption under Notification No. 12/2017.

Issue-wise Detailed Analysis:

1. Classification of the Service Provided by the Government for the Right to Mine Sand:
The Respondent, engaged in the business of mining sand, sought an advance ruling on whether they were correctly discharging their GST liability at 5% under the reverse charge mechanism. The AAR Bihar classified the service under SAC 997337, "Licensing services for the right to use minerals including its exploration and evaluation," and ruled that the service is taxable at 18% from 01/01/2019 onwards. The Joint Commissioner of State Tax, Sahabad Circle, Arrah, appealed this ruling, arguing that the service should be classified under SAC 999113, which pertains to "Administrative services provided by government offices concerning discovery, exploitation, and other aspects of minerals production," and should be taxable at 18% from 01/07/2017. The Appellate Authority for Advance Ruling (AAAR) upheld the classification under SAC 997337, confirming that the service involves licensing for the right to use minerals, including exploration and evaluation.

2. Applicable GST Rate for the Service:
The AAR Bihar initially ruled that the service was taxable at 5% GST up to 31/12/2018 and 18% thereafter. The AAAR, however, clarified that the service has always been taxable at 18% from 01/07/2017, as per the GST Council's recommendations and Circular No. 164/2021. The circular clarified that the service of granting mineral exploration and mining rights falls under the standard GST rate of 18%, even if it was not explicitly mentioned in the rate schedule for the period 01/07/2017 to 31/12/2018.

3. Applicability of Exemption under Notification No. 12/2017:
The Respondent argued that their service fell under the exemption provided by Serial No. 64 of Notification No. 12/2017, which exempts services provided by the government by way of assignment of the right to use any natural resource, assigned before 01/04/2016. The AAAR rejected this argument, stating that the service provided by the government was not merely the assignment of the right to use a natural resource but involved granting a license to mine and sell sand. The AAAR emphasized that the exemption under Serial No. 64 did not apply as the service did not involve the right to use the sand but rather the right to extract and sell it.

Conclusion:
The AAAR set aside the AAR Bihar's order and held that:
(a) The service by way of grant of mining rights by the State Government is classifiable under heading 997337.
(b) The service is covered by Serial No. 17 of Notification No. 11/2017 Central/State Tax (Rate), dated 28/06/2017.
(c) The service is taxable at the rate of 18% (9% CGST + 9% SGST) from 01/07/2017 to 31/12/2018, and post 01/01/2019, it remains taxable at 18%.

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