GST Ruling: Royalty on Mining Rights Classified as Service Under Reverse Charge

The Authority classified royalty paid on mining rights under the reverse charge mechanism as a supply of services falling under Heading 9973, attracting 18% GST. The ruling clarified that the applicant is liable to discharge tax under the reverse charge mechanism as per Notification No. 13/2017-CT (Rate). This decision provides a clear interpretation of the applicable GST rates and mechanisms for transactions involving royalty paid for mining rights.

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Issues:
1. Classification of royalty paid on account of mining rights under reverse charge mechanism.
2. Applicability and rate of GST on royalty/dead rent paid.

Analysis:
1. The applicant sought clarification on whether the royalty paid on mining rights is liable to tax under the reverse charge mechanism. The applicant argued that the payment of royalty to the government is for the right to use minerals, and hence, falls under the category of services as per Notification No. 11/2017-CT (Rate). The applicant contended that the charges paid for granting the right to use minerals attract GST at the rate applicable to the supply of such goods extracted through mining, which is 5% under CGST and APSGST combined for broken or crushed stone classified under Tariff Heading 2517.

2. The Authority found that the applicant, engaged in mining activities, is required to pay dead rent or royalty to the government under the AP Minor Minerals Concession Rules, 2017. This payment is considered a supply of services, specifically "Licensing services for the right to use minerals including its exploration and evaluation." The Authority determined that the applicant's activity falls under Heading 9973 of the GST classification, attracting 18% GST (9% CGST + 9% SGST) as per Notification No. 11/2017-CT (Rate). The reverse charge mechanism is applicable, as per Notification No. 13/2017-CT (Rate), making the applicant liable to discharge tax under this mechanism.

Conclusion:
The Authority ruled that the applicant's activity is classifiable under Heading 9973, specifically under item (viii) of serial no. 17 of Notification No. 11/2017, attracting 18% GST under the reverse charge mechanism. The ruling clarified the tax liability on the royalty paid for mining rights, providing a clear interpretation of the applicable GST rates and mechanisms for such transactions.

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