Taxable at 18%: Licensing services for mineral use in Odisha.

The Appellate Authority for Advance Ruling, Odisha, determined that the licensing services for the right to use minerals, including their exploration and evaluation, received by the Applicant are taxable at 18% (9% CGST and 9% OGST) for the period from July 2017 to December 2018. The reference from the Odisha Authority for Advance Ruling was disposed of accordingly.

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Issues Involved:
1. Rate of GST payable under Reverse Charge Mechanism on royalty paid to the Government for mining of Iron Ore for the period July 2017 to December 2018.
2. Classification of the service provided by the Government to the Applicant.
3. Applicability of past advance rulings from other states on the same issue.

Issue-wise Detailed Analysis:

1. Rate of GST Payable under Reverse Charge Mechanism on Royalty Paid to Government for Mining of Iron Ore for the Period July 2017 to December 2018:

The Applicant sought an advance ruling on the rate of GST payable on royalty paid to the State Government under the Reverse Charge Mechanism for the period from July 2017 to December 2018. The Advance Ruling Authority (AAR) members had differing views on whether an advance ruling could be issued for past transactions. One member opined that the ruling should pertain to future transactions only, as per Section 97 of the CGST Act, 2017, while the other member believed that the ruling could also cover past transactions since GST rates are prescribed by notifications.

The Appellate Authority examined the issue and found that the service of mining lease availed by the Applicant should be classified under the head 997337, which pertains to "Licensing services for the right to use minerals including its exploration and evaluation." The rate of GST applicable to such services was determined to be 18% (9% CGST and 9% OGST) during the period from July 2017 to December 2018.

2. Classification of the Service Provided by the Government to the Applicant:

The Applicant argued that the mining lease service should be classified under the head 99733 and that the rate of GST applicable to the supply of iron ore (5%) should apply to the royalty paid. However, the Appellate Authority found that the service received by the Applicant from the State Government merits classification under the head 997337, which includes "Licensing services for the right to use minerals including its exploration and evaluation." This classification was consistent with the rulings of Advance Ruling Authorities from other states.

The Appellate Authority disagreed with the rulings of AAR Haryana and AAR Chhattisgarh, which had held that the rate of GST on such services should be the rate applicable to the minerals. The Authority reasoned that the mining lease service does not involve the lease of any goods but rather the conferment of the right to exploit and appropriate the minerals, and hence, the rate prescribed for leasing of goods cannot be applied.

3. Applicability of Past Advance Rulings from Other States on the Same Issue:

The Applicant cited several advance rulings from different states, including Rajasthan, Haryana, Chhattisgarh, Madhya Pradesh, and Karnataka, which had held that the mining lease service is classifiable under the head 99733 and that the rate of GST applicable to such services should be 5% for the period from July 2017 to December 2018. However, the Appellate Authority found these rulings to be devoid of logic and inconsistent with the legislative intent and the recommendations of the GST Council.

The Authority examined the amendments made to the Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017, particularly the amendments introduced by Notification No. 27/2018-Central Tax (Rate) dated 31-12-2018, which clarified that the rate of GST applicable to leasing or renting of goods should not apply to mining lease services. The Authority concluded that the rate of GST on mining lease services should be 18% (9% CGST and 9% OGST) during the period from July 2017 to December 2018.

Conclusion:

The Appellate Authority for Advance Ruling, Odisha, ruled that the licensing services for the right to use minerals, including their exploration and evaluation, received by the Applicant, are taxable at 18% (9% CGST and 9% OGST) for the period from July 2017 to December 2018. The reference from the Odisha Authority for Advance Ruling was disposed of accordingly.

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