GST Appellate Authority Upholds Taxable Status of Rajasthan Service at 18%

The appellate authority upheld the AAR, Rajasthan's ruling that the service provided by the State of Rajasthan, for which royalty is paid, is taxable at 18% under entry No. 17(viii) of Notification No. 11/2017-Central Tax (Rate). The appellant's argument for a lower GST rate was rejected based on the classification and the updated notification. Consequently, the appeal by M/s. Aravali Polyart (P) Ltd. was dismissed.

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Issues Involved:
1. Classification of service provided by the State of Rajasthan for which royalty is being paid.
2. Applicable GST rate on the said service.

Issue-wise Detailed Analysis:

1. Classification of Service Provided by the State of Rajasthan:

The appellant, M/s. Aravali Polyart (P) Ltd., sought an advance ruling on the classification of the service provided by the State of Rajasthan for which royalty is being paid. The Rajasthan Authority for Advance Ruling (AAR) classified the service under SAC 997337 as "Licensing services for the right to use minerals including its exploration and evaluation." The appellant did not object to this classification but contested the applicable GST rate.

2. Applicable GST Rate on the Said Service:

The AAR, Rajasthan, ruled that the service attracts 18% GST under SI. No. 17(viii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The appellant argued that the service should be classified under SI. No. 17(iii), (iv), or (viia) of the same notification, attracting a GST rate of 5%. The appellant's contentions included:

- Royalty is linked with the right to use goods (minerals) provided by the State Government.
- Royalty varies with the quantity of minerals extracted or removed, and thus, it is a consideration for the right to use minerals.
- The appellant cited various legal precedents and definitions to support their argument that royalty is a consideration for the right to use minerals.

During the personal hearing, the appellant reiterated their stance and cited additional rulings in their favor.

Discussion and Findings:

The appellate authority examined the classification and GST rate applicable to the service. It was confirmed that the service is rightly classified under SAC 997337. The authority then analyzed the applicable GST rate under entry No. 17 of Notification No. 11/2017-Central Tax (Rate). The authority found that the service does not fall under entry Nos. 17(iii), (iv), or (viia) but under entry No. 17(viii), which prescribes an 18% GST rate.

The authority also reviewed the recommendations of the GST Council's 31st meeting, which clarified that the residuary rate entry for Heading 9973 should be split, and the service in question falls under the new entry No. 17(viii) with an 18% GST rate. The appellant's reliance on earlier rulings was dismissed as those rulings did not consider the updated notification.

Order:

The appellate authority upheld the AAR, Rajasthan's ruling that the service is taxable at 18% under entry No. 17(viii) of Notification No. 11/2017-Central Tax (Rate). Consequently, the appeal filed by M/s. Aravali Polyart (P) Ltd. was dismissed.

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