GST Rate Dispute: Mining Services Classification

The case involved the classification of services provided by the State of Rajasthan for mining activities and the applicability of GST rates on these services. The applicant argued for a lower GST rate based on the nature of the service, while the jurisdictional officer contended for a higher rate. The authority ruled that the services fell under a specific category attracting an 18% GST rate and that the applicant was liable to discharge the tax under the reverse charge mechanism. The applicant's activity was classified under Licensing services for the right to use minerals, and the GST rate applicable was 18%.

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Issues Involved:
1. Classification of service provided by the State of Rajasthan.
2. Applicability of GST rate on the service.
3. Liability to discharge GST under reverse charge mechanism.

Issue-wise Detailed Analysis:

1. Classification of Service Provided by the State of Rajasthan:
The applicant, engaged in mining Wollastonite, Calcite, Feldspar, and Quartz, sought clarification on the classification of services provided by the State of Rajasthan for which royalty is paid. The applicant argued that the service should be classified under "Licensing services for the right to use minerals including its exploration and evaluation" (sub-heading 997337) as per Notification No. 11/2017-CT (Rate) dated 28.06.2017. The jurisdictional officer, however, suggested that the service falls under "Licensing services for right to use other natural resources including telecommunication spectrum" (sub-heading 997338).

2. Applicability of GST Rate on the Service:
The applicant contended that the rate of GST on the service should be the same as the rate applicable to the minerals being extracted, which is 5%. They based this on the interpretation that the service of granting the right to use minerals should attract the same GST rate as the supply of the minerals themselves. However, the jurisdictional officer argued that the applicable GST rate on the activity is 18% (9% CGST + 9% SGST) as per Notification No. 11/2017 dated 28-06-2017, amended by Notification No. 27/2018 dated 31/12/2018.

3. Liability to Discharge GST under Reverse Charge Mechanism:
The applicant sought clarity on who would be liable to discharge GST on the royalty paid to the State Government. The applicant referenced the Ministry’s clarification that royalty payments are subject to GST under the reverse charge mechanism, making the recipient of the service (the applicant) liable to pay the tax.

Findings, Analysis & Conclusion:

a. Classification of Service:
The authority observed that the applicant entered into a lease agreement for mining and is required to pay dead rent or royalty, which is considered a supply of service. The service is classified under "Licensing services for the right to use minerals including its exploration and evaluation" (sub-heading 997337) as per Notification No. 11/2017-CT (Rate) dated 28.06.2017.

b. Applicability of GST Rate:
The relevant portion of the serial no. 17 for item (viii) of Notification No. 11/2017-CT (Rate), dated 28.06.2017, specifies that leasing or rental services not covered under specific sub-headings attract a GST rate of 18% (9% CGST + 9% SGST). The authority concluded that the service provided by the State of Rajasthan falls under this category.

c. Liability to Discharge GST:
The authority confirmed that the applicant is receiving leasing/licensing services from the government, and therefore, the provisions of the reverse charge mechanism are applicable. This is in accordance with Notification No. 13/2017-CT (Rate), dated 28.06.2017, which mandates the recipient to discharge the tax liability.

Ruling:
A. The activity undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services, with or without operator), specifically under sub-heading 997337 (Licensing services for the right to use minerals including its exploration and evaluation).
B. The activity attracts 18% GST (9% CGST + 9% SGST), and the applicant is liable to discharge the tax liability under the reverse charge mechanism as per Notification No 13/2017-CT (Rate), dated 28.06.2017.

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