Mining lease royalty and district mineral fund contribution form part of taxable licensing service value under GST reverse charge.

Royalty paid for a mining lease was treated as consideration for the Government's licensing service to use minerals, because it was a compulsory payment directly linked to the grant of mining rights and therefore formed part of the taxable value under Heading 9973. The service was held taxable under the relevant GST rate structure, and where the supplier was the State Government and the recipient was a business entity, tax was payable by the recipient under reverse charge. The statutory contribution to the District Mineral Foundation was also held to be a compulsory amount linked to royalty and the mining permit, so it too formed part of the consideration for the same supply.

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Issues: (i) Whether royalty paid for a mining lease is a part of the consideration for licensing services for the right to use minerals including exploration and evaluation. (ii) Whether such service is taxable at the applicable rate under the relevant GST notifications and whether tax is payable under reverse charge. (iii) Whether the statutory contribution to the District Mineral Foundation forms part of the consideration for the same service.

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

Analysis: The lease of government land for quarrying was treated as a supply of service. The royalty paid under the mining law was held to be an amount levied under law and directly linked to the grant of mining rights. It therefore formed part of the value of the service supplied by the Government.

Conclusion: The issue is answered in favour of the view that royalty is part of the consideration for the licensing service under Heading 9973.

Issue (ii): Whether such service is taxable at the applicable rate under the relevant GST notifications and whether tax is payable under reverse charge.

Analysis: The service was classified under Heading 9973 as licensing services for the right to use minerals. Up to 31.12.2018, the applicable rate was that attached to like goods involving transfer of title in goods. From 01.01.2019, the residual entry under Serial No. 17 attracted 9% CGST and 9% SGST. Since the supplier was the State Government and the recipient was a business entity, the liability was held to fall under reverse charge.

Conclusion: The service is taxable at the stated rates and tax is payable under reverse charge by the recipient.

Issue (iii): Whether the statutory contribution to the District Mineral Foundation forms part of the consideration for the same service.

Analysis: The contribution to the District Mineral Foundation was held to be a compulsory statutory payment computed with reference to royalty and payable as a condition for the mining permit. It was therefore treated as an amount included in the value of the same taxable supply.

Conclusion: The statutory contribution to the District Mineral Foundation is part of the consideration for the licensing service.

Final Conclusion: The ruling treats royalty and the District Mineral Foundation contribution as components of the taxable value of the mining licence service, and applies GST on that basis under the reverse charge mechanism.

Ratio Decidendi: Where a mining lease granted by the Government confers a taxable licensing service to use minerals, all compulsory statutory payments linked to that licence and charged under the governing mining law form part of the consideration for the supply, and tax is payable by the business recipient under reverse charge.

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