Mining royalty as licensing service attracts GST at 18% and reverse charge when Government grants mineral rights.

Royalty or dead rent paid for a mining lease is consideration for granting the right to use minerals, so it is classifiable as licensing services for the right to use minerals, including their exploration and evaluation, under Heading 9973 and sub-heading 997337. The service falls within the residual entry of Notification No. 11/2017-CT (Rate) and is taxable at 18% GST, split as 9% CGST and 9% SGST. Because the supply is made by Government in relation to licensing or leasing of natural resources, reverse charge applies under Notification No. 13/2017-CT (Rate), and the tax is payable by the recipient.

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Issues: (i) Whether the royalty or dead rent paid for the mining lease of minerals is classifiable under Heading 9973 and sub-heading 997337 as licensing services for the right to use minerals including their exploration and evaluation. (ii) Whether the said service attracts GST at 18% and tax is payable under reverse charge mechanism.

Issue (i): Whether the royalty or dead rent paid for the mining lease of minerals is classifiable under Heading 9973 and sub-heading 997337 as licensing services for the right to use minerals including their exploration and evaluation.

Analysis: The consideration paid for mineral rights is a service of granting permission to use natural resources. Such activity is covered under the scheme of classification of services as licensing services for the right to use minerals including their exploration and evaluation. The relevant entry falls under Heading 9973, Group 99733, sub-heading 997337, and is not confined to the specific entries dealing with other forms of licensing or rental services. The royalty or dead rent paid in connection with the mining lease therefore corresponds to that service classification.

Conclusion: The service is classifiable under Heading 9973, specifically sub-heading 997337.

Issue (ii): Whether the said service attracts GST at 18% and tax is payable under reverse charge mechanism.

Analysis: The service falls under the residual part of serial no. 17 of Notification No. 11/2017-CT (Rate), which prescribes the rate for leasing or rental services other than the specified excluded categories. On that basis, the applicable rate is 9% CGST and 9% SGST. Since the supply is by the Government in respect of licensing or leasing of natural resources, the reverse charge provisions under Notification No. 13/2017-CT (Rate) apply.

Conclusion: The service attracts GST at 18% and tax is payable under reverse charge mechanism.

Final Conclusion: The royalty or dead rent paid for the mining lease is treated as a taxable licensing service for use of minerals, taxable at 18%, with liability discharged under reverse charge.

Ratio Decidendi: Consideration paid for the grant of rights to use minerals is a supply of licensing service under Heading 9973 and, where supplied by Government, is taxable at the rate prescribed for the applicable residual entry with reverse charge liability.

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