Mining royalty and statutory mineral contributions treated as taxable GST supplies under reverse charge in an advance ruling.

Royalty paid for a mining lease was treated as consideration for a licensing service relating to the right to use minerals, classifiable under sub-heading 997337 and taxable at the rate applicable to like goods under reverse charge. Statutory contributions to the District Mineral Foundation and the National Mineral Exploration Trust were treated as compulsory payments made in the course or furtherance of mining business, not donations, and were held to constitute taxable supply for GST purposes. Reverse charge was applied to both royalty and the statutory contributions, so GST liability arose on the mining-related payments.

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Issues: (i) Whether royalty paid for mining lease is classifiable as licensing services for the right to use minerals including exploration and evaluation and taxable at the rate applicable to like goods under reverse charge. (ii) Whether statutory contributions to the District Mineral Foundation and the National Mineral Exploration Trust are a supply liable to GST under reverse charge.

Issue (i): Whether royalty paid for mining lease is classifiable as licensing services for the right to use minerals including exploration and evaluation and taxable at the rate applicable to like goods under reverse charge.

Analysis: Royalty paid for mining rights was treated as consideration for licensing services relating to the right to use minerals, falling under sub-heading 997337 and entry 17 of the rate notification. The service was held to be covered by the residuary description and to attract the same rate as applicable to the supply of like goods involving transfer of title in goods. As the recipient of the mining right was a business entity, tax was held payable on reverse charge basis under the notified reverse charge entry.

Conclusion: The royalty paid in respect of the mining lease is taxable under reverse charge at the rate applicable to the like goods being mined.

Issue (ii): Whether statutory contributions to the District Mineral Foundation and the National Mineral Exploration Trust are a supply liable to GST under reverse charge.

Analysis: The contributions were held to be compulsory payments made in the course or furtherance of the applicant's mining business and not mere donations. The trusts were treated as authorities performing functions akin to local bodies, and the payments were held to fall within the ambit of taxable supply for GST purposes. On that basis, the reverse charge mechanism under the notified government-services entry was applied.

Conclusion: The contributions to DMF and NMET are liable to GST under reverse charge.

Final Conclusion: Both questions were answered against the applicant, and the advance ruling upheld GST liability on royalty as well as on the statutory contributions to DMF and NMET.

Ratio Decidendi: Royalty for mining rights is a taxable licensing service under the GST rate entry for rights to use minerals, and compulsory statutory contributions connected with mining operations can constitute taxable supply when made in the course or furtherance of business.

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