Mineral-rights licensing service classified under heading 9973; royalty taxed at the goods-linked rate and paid under reverse charge.

Grant of a mining lease conferring the right to use minerals, including exploration and evaluation, is classified as licensing services under heading 9973, group 99733 of Notification No. 11/2017-CT (Rate). The royalty or dead rent paid for this mineral-rights service attracts GST at the same rate as the corresponding extracted mineral goods, which in this case is 5%. Where the service is supplied by the Government, GST is payable by the recipient under reverse charge mechanism under Notification No. 13/2017-CT (Rate).

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Issues: (i) whether the service of granting the right to use minerals, including exploration and evaluation, falls under heading 9973 and group 99733 under Notification No. 11/2017-CT (Rate); (ii) what rate of GST applies to royalty or dead rent paid for such mineral-rights service; and (iii) whether GST on such service is payable by the recipient under reverse charge mechanism under Notification No. 13/2017-CT (Rate).

Issue (i): whether the service of granting the right to use minerals, including exploration and evaluation, falls under heading 9973 and group 99733 under Notification No. 11/2017-CT (Rate)

Analysis: The service in question is the grant of a mining lease conferring the right to use minerals for consideration in the form of royalty or dead rent. The classification entry in the annexure to Notification No. 11/2017-CT (Rate) specifically includes licensing services for the right to use minerals, including exploration and evaluation, in group 99733 under heading 9973.

Conclusion: The service is classifiable under heading 9973, group 99733, as licensing services for the right to use minerals, including its exploration and evaluation.

Issue (ii): what rate of GST applies to royalty or dead rent paid for such mineral-rights service

Analysis: The notified classification for the right to use minerals attracts the same rate as the supply of like goods involving transfer of title. Since the extracted stone boulders are classifiable under HSN 2516 and attract 5% GST, the corresponding service for the mineral right follows the same rate.

Conclusion: The royalty or dead rent paid for the mineral-rights service attracts GST at 5%.

Issue (iii): whether GST on such service is payable by the recipient under reverse charge mechanism under Notification No. 13/2017-CT (Rate)

Analysis: Entry 5 of Notification No. 13/2017-CT (Rate) places the tax liability on the recipient for services supplied by the Government, and the exclusion relied upon by the applicant was not accepted.

Conclusion: GST on the service is payable by the recipient, namely the applicant, under reverse charge mechanism.

Final Conclusion: The mineral-rights service was classified as licensing services under heading 9973/99733, taxed at the same rate as the extracted mineral at 5%, and the tax liability was held to lie on the recipient under reverse charge.

Ratio Decidendi: A governmental grant of the right to use minerals for consideration is a taxable licensing service under the service classification for mineral-rights, and the applicable tax rate follows the rate of the corresponding goods; where the Government supplies such services, the recipient bears the tax liability under reverse charge if so notified.

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