2018 (9) TMI 1477 - AAR - GST

Mining lease royalty classified under tariff 9973 at 5% GST rate with reverse charge liability on mining company

AAR Haryana ruled on GST classification and liability for mining lease services. The authority classified royalty/dead rent paid for mineral extraction ... Classification of services as licensing services for right to use minerals (Group 99733 / Heading 9973) - Tax rate on services equal to rate on supply of like goods - Reverse charge mechanism - recipient liable to discharge tax - Consideration for transfer of right to use natural resources as supply of servicesClassification of services as licensing services for right to use minerals (Group 99733 / Heading 9973) - Consideration for transfer of right to use natural resources as supply of services - Services provided by the State Government to the applicant for which royalty/dead rent is paid are classifiable under Group 99733 (heading 9973) as licensing services for the right to use minerals including its exploration and evaluation. - HELD THAT: - The annexure to Notification No. 11/2017-CT (Rate) at Sr. No. 257 includes sub-heading 997337 for 'Licensing services for the right to use minerals including its exploration and valuation.' The dead rent/royalty paid under the lease deed is consideration for the transfer of the right to use minerals granted by the Government to the lessee for a specified period. Consequently, the transaction falls within the scope of licensing services for right to use minerals as covered by Group 99733/Heading 9973.The service is classifiable as licensing services for the right to use minerals (Group 99733 / Heading 9973).Tax rate on services equal to rate on supply of like goods - Rate applicable to extracted minerals (HSN 2516) as reference - The GST rate on the services for right to use minerals is the same as the rate applicable on the supply of like goods, and therefore attracts the rate applicable to the minerals extracted (stone boulders under HSN 2516). - HELD THAT: - Notification No. 11/2017-CT (Rate) provides that services for the right to use minerals (Group 99733) attract the same rate as applicable on supply of like goods involving transfer of title. The minerals extracted by the applicant are classifiable under HSN 2516, which, as per the relevant notifications, attract GST at the rate specified for that HSN. Applying this principle, the service (licence/right to use minerals) attracts the same rate as the extracted minerals.The service attracts the same GST rate as the like goods (stone boulders under HSN 2516), i.e., the rate applicable to those minerals.Reverse charge mechanism - recipient liable to discharge tax - Notification No. 13/2017-CT (Rate) entry relating to government services - The recipient (the applicant) is liable to discharge the GST on the services provided by the State Government under the reverse charge mechanism as per entry no. 5 of Notification No. 13/2017-CT (Rate). - HELD THAT: - Entry no. 5 of Notification No. 13/2017-CT (Rate), read with the corresponding State notification, contemplates tax liability on the recipient for specified services provided by the Government. The Authority observed that the applicant's reliance on an exclusion was misconceived and that the entry operates to cast the liability to pay tax on the recipient under reverse charge. The departmental comments also recorded that GST is payable on royalty under reverse charge by the recipient.GST on the services provided by the State Government is payable by the recipient (applicant) under the reverse charge mechanism.Final Conclusion: The dead rent/royalty paid by the applicant to the State Government is a consideration for licensing services for the right to use minerals and is classifiable under Group 99733/Heading 9973; such services attract the same GST rate as the like goods (the extracted stone boulders under HSN 2516); and the recipient (applicant) is liable to discharge GST on these services under the reverse charge mechanism. Issues involved:1. Classification of service provided by the State Government of Haryana to the applicant for which royalty is being paid.2. Rate of GST on the services provided by the State Government of Haryana to the applicant.3. Applicability of Notification No. 13/2017-CT (Rate) and determination of the taxable person liable to discharge GST.Detailed Analysis:1. Classification of Service:The applicant, engaged in mining activities, sought clarification on the classification of services provided by the State Government of Haryana for which royalty is paid. The Authority analyzed the relevant provisions of the CGST Act 2017 and Notification No. 11/2017-CT (Rate). It was ruled that the services for the right to use minerals, including exploration and evaluation, fall under group 99733 of heading 9973. The royalty paid by the applicant to the Government is considered as consideration for the transfer of the right to use minerals as per the lease agreement.2. Rate of GST:Regarding the rate of GST on the services provided by the State Government of Haryana, the Authority referred to Notification No. 11/2017-CT (Rate) and determined that the services for the right to use minerals attract the same rate of tax as on the supply of similar goods involving the transfer of title. Stone boulders extracted by the applicant were classified under HSN 2516 and attract 5% GST (2.5% CGST + 2.5% HGST) as specified in the notification.3. Applicability of Notification No. 13/2017-CT (Rate):The Authority addressed the applicability of Notification No. 13/2017-CT (Rate) and determined the tax liability under reverse charge mechanism. It was ruled that as per the notification, the recipient of such services, i.e., the applicant, is liable to discharge the tax on the services provided by the State Government of Haryana on a reverse charge basis. The ruling was ordered accordingly for communication to the parties involved.