2020 (8) TMI 908 - AAAR - GST

Appellate ruling: Tax liability on contributions to mineral trusts upheld under GST reverse charge.

The Appellate Authority for Advance Ruling upheld the tax liability of the Appellant on contributions made to District Mineral Foundation and National ... Supply of services - reverse charge mechanism - consideration / value of supply - licensing services for the right to use minerals - statutory contributions to District Mineral Foundation and National Mineral Exploration Trust treated as additions to royaltyStatutory contributions to District Mineral Foundation and National Mineral Exploration Trust treated as additions to royalty - supply of services - reverse charge mechanism - consideration / value of supply - Liability of the appellant to pay Goods and Services Tax under reverse charge on contributions made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) under the MMDR Act, 1957. - HELD THAT: - The Authority for Advance Ruling had held that the amounts payable to DMF and NMET are described by the MMDR Act as payable 'in addition to' royalty and are therefore in the nature of payments made in respect of mining rights. The Appellate Authority records that the appellant did not contest AAR's classification that the activity constitutes a 'supply' and, under paragraph 5(e) of Schedule II and sub-clause (i) of clause (17) of section 2 of the CGST Act, is a supply of services. The Act obliges the holder of a mining lease to make these payments as part of the statutory incidence linked to the grant/continuance of mining rights; the statutory scheme bifurcates the heads of payment but the liabilities are concomitant to securing mining rights. Given that these payments are in the nature of consideration for a taxable supply and that AAR had held the supply to be taxable under the reverse charge mechanism as per the relevant notification, the Appellate Authority confirms that the appellant is liable to pay GST on such contributions under reverse charge. The conclusion rests on (a) the characterisation of the payments as additions to royalty/payments in respect of mining rights, (b) the established classification of the activity as a supply of services, and (c) applicability of reverse charge as held by AAR. [Paras 6, 7, 10, 11, 13]Concur with AAR that contributions to DMF and NMET are in the nature of payments in respect of mining rights and, being consideration for a supply of services, are liable to GST under the reverse charge mechanism.Final Conclusion: The order of the Authority for Advance Ruling is confirmed: the appellant is liable to pay GST under reverse charge on contributions made to the District Mineral Foundation and the National Mineral Exploration Trust under the MMDR Act, 1957. Issues involved:1. Classification of royalty paid in respect of Mining Lease under Licensing services for the right to use minerals.2. Determination of tax liability on contributions made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) as per Mines and Minerals (Development and Regulation) Act, 1957.Analysis:1. The Appellate Authority for Advance Ruling (AAAR) dealt with an appeal filed by a state-controlled mineral producer against an order of the Authority for Advance Ruling regarding the classification of royalty paid for a Mining Lease. The AAAR affirmed the ruling of the AAR, classifying the service under Tariff Heading 99733. The AAAR found the service to be akin to licensing services for the right to use minerals, aligning with the appellant's contentions.2. The second issue revolved around the tax liability on contributions to DMF and NMET under the MMDR Act. The AAR had ruled that such contributions were additional payments akin to royalty, thus subject to GST. The Appellant contested this ruling before the AAAR, arguing that the contributions were not against any taxable supply, hence not liable for GST. The Appellant emphasized the absence of a service provider-service recipient relationship and the non-commercial nature of the Trusts' activities.3. The Appellant presented various grounds of appeal, asserting that the contributions were not for any supply made by DMF and NMET, hence not subject to GST. The Appellant argued against the reverse charge mechanism, citing the nature and objectives of the Trusts as non-commercial and welfare-driven. However, the Appellant did not contest the AAR's classification of the contributions as royalty payments under the MMDR Act.4. The AAAR analyzed the provisions of the MMDR Act and noted the mandatory nature of payments by mining lease holders, including royalties, dead rent, and contributions to DMF and NMET. The AAAR highlighted the statutory obligations on the Appellant to make these payments, regardless of the nomenclature used in the Act. The AAAR upheld the AAR's decision, confirming the Appellant's liability to pay GST under reverse charge on contributions to DMF and NMET as per the MMDR Act.In conclusion, the Appellate Authority for Advance Ruling affirmed the tax liability of the Appellant on contributions made to District Mineral Foundation and National Mineral Exploration Trust under the Mines and Minerals (Development and Regulation) Act, 1957, subject to GST under the reverse charge mechanism.