Applicant Liable for GST on Royalty Amount: 18% Rate.

The applicant is liable to pay GST on the royalty amount under the Reverse Charge Mechanism at the rate of 18% (9% CGST + 9% SGST). The royalty amount is includible in the value of supply of services as per Section 15 of the CGST Act, 2017, for payment of applicable GST on the services rendered by the applicant to the main contractor. The ruling by the Authority for Advance Ruling, Chhattisgarh, confirms the GST liability on the royalty amount and its inclusion in the transaction value for GST payment on services provided.

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Issues Involved:
1. Liability to GST on Royalty amount paid under Reverse Charge Mechanism (RCM).
2. Inclusion of Royalty amount in the value of supply of service as per Section 15 of the CGST Act, 2017 for payment of GST.

Detailed Analysis:

Issue 1: Liability to GST on Royalty Amount Paid Under RCM
The applicant sought an advance ruling on whether GST is required to be paid on the royalty amount under the Reverse Charge Mechanism (RCM). The applicant, a subcontractor, paid the royalty to the State Government for soil used in earthwork, with the payment made in the name of the main contractor. The mining right granted for soil mining is classified under sub-heading 997337, which specifies 'Licensing services for the right to use minerals including its exploration and evaluation'. This classification falls under entry no. 17 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017, attracting the same rate as applicable for the supply of like goods involving transfer of title in goods.

As per Section 2(9B) and Section 2(98) of the CGST Act, 2017, the liability to pay tax under RCM is on the recipient of goods/services. Notification No. 13/2017 - Central Tax (Rate) dated 28.06.2017 specifies that services supplied by the Central Government, State Government, Union territory, or local authority to a business entity attract GST under RCM. The applicant, as the recipient of the mining rights, is liable to pay GST at the rate applicable for the supply of like goods being mined, which is 18% (9% CGST + 9% SGST).

Issue 2: Inclusion of Royalty Amount in the Value of Supply of Service
The second issue was whether the royalty amount should be included in the value of supply of service as per Section 15 of the CGST Act, 2017, for payment of GST. 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 if charged separately by the supplier. The royalty paid by the applicant is considered a fee levied under the Chhattisgarh Mining Act and is thus includible in the value of supply.

Section 15(1) defines the value of a supply of goods or services as the transaction value, which is the price actually paid or payable for the supply. Section 15(2)(a) further includes any taxes, duties, cesses, fees, and charges levied under any law other than the GST Act in the value of supply. Therefore, the royalty amount paid by the applicant must be added to the transaction value for calculating the applicable GST on the services rendered to the main contractor.

Conclusion:
1. GST on Royalty under RCM: The applicant is liable to pay GST on the royalty amount under the Reverse Charge Mechanism at the rate of 18% (9% CGST + 9% SGST).
2. Inclusion of Royalty in Value of Supply: The royalty amount is includible in the value of supply of services as per Section 15 of the CGST Act, 2017, for payment of applicable GST on the services rendered by the applicant to the main contractor.

Order:
The ruling provided by the Authority for Advance Ruling, Chhattisgarh, is as follows:
1. GST at the applicable rate is payable by the applicant on the royalty amount under Reverse Charge Mechanism.
2. The royalty amount is includible in the transaction value for payment of applicable GST on the supply of services rendered by the applicant to the main contractor, as stipulated under Section 15 of the CGST Act, 2017.

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