Mining royalty and statutory mineral fund contributions were treated as taxable licensing service consideration, with GST payable under reverse charge.

Royalty paid under a mining lease was treated as consideration for the Government's licensing service permitting the right to use minerals, including exploration and evaluation, and not as an excluded profit a prendre. DMF and NMET contributions, being compulsory payments linked to royalty and required for obtaining and continuing the mining permit, were held inseparable from the same supply and includible in the value of supply. The AAR also held that the service was supplied by Government to a business entity and was liable to GST under reverse charge, making the recipient responsible for tax payment.

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Issues: (i) whether royalty paid for a mining lease is taxable as consideration for licensing services for the right to use minerals including exploration and evaluation; (ii) whether statutory contributions to District Mineral Foundation and National Mineral Exploration Trust form part of the taxable consideration for the same service; and (iii) whether tax on such supply is payable by the recipient under reverse charge.

Issue (i): whether royalty paid for a mining lease is taxable as consideration for licensing services for the right to use minerals including exploration and evaluation.

Analysis: Royalty was held to be payable in respect of minerals removed or consumed under the mining lease and therefore linked to the permission granted by the Government to extract and use minerals. The service was treated as licensing services for the right to use minerals including exploration and evaluation under Heading 9973. The classification was not accepted as a mere profit a prendre or as an excluded category; instead, it was treated as a taxable supply of services. The rate applicable was held to be the rate linked to supply of like goods up to 31.12.2018, and thereafter the residual leasing or rental entry attracted 9% CGST and 9% SGST from 01.01.2019 onwards.

Conclusion: Royalty is taxable as part of the consideration for licensing services for the right to use minerals including exploration and evaluation.

Issue (ii): whether statutory contributions to District Mineral Foundation and National Mineral Exploration Trust form part of the taxable consideration for the same service.

Analysis: The contributions to DMF and NMET were found to be compulsory payments calculated with reference to royalty and made as a condition for obtaining and continuing the mining permit. They were held to be inseparable from the same supply of licensing services provided by the Government. Since the service would not be available without such payments, the amounts were treated as part of the value of supply under the valuation provisions.

Conclusion: DMF and NMET contributions form part of the taxable consideration and are includible in the value of supply.

Issue (iii): whether tax on such supply is payable by the recipient under reverse charge.

Analysis: The supply was held to be made by the State Government to a business entity, and the entry governing services supplied by Government to business entities applied, subject to the stated exclusions which were held not to cover the present transaction. The recipient was therefore treated as liable to discharge tax on reverse charge basis.

Conclusion: The applicant is liable to pay GST on reverse charge basis as recipient of the Government service.

Final Conclusion: The ruling treats royalty, DMF and NMET contributions as part of one taxable licensing service supplied by the Government and holds the recipient liable to pay GST under reverse charge.

Ratio Decidendi: Compulsory payments made as a condition for mining rights, where they are intrinsically linked to the Government's licensing of mineral extraction, constitute the value of a taxable supply of services and are liable to tax in the hands of the business recipient under reverse charge when supplied by the Government.

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