Mining royalty and statutory mineral-fund contributions treated as taxable licensing services for mineral rights under reverse charge.

Royalty paid for a mining lease was treated as consideration for the Government's licensing service granting the right to use minerals, including exploration and evaluation, and was classified under SAC 997337. The supply was held taxable under reverse charge, with GST at 5% till 31.12.2018 and 18% thereafter. Mandatory contributions to the District Mineral Foundation, the National Mineral Exploration Trust and the Goa Mineral Ore Permanent Fund Trust were also treated as consideration linked to the same mineral-rights service, not as donations, and were similarly held taxable under reverse charge at the same rates.

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Issues: (i) Whether royalty paid for mining lease is classifiable as licensing services for the right to use minerals including exploration and evaluation, and the applicable GST rate thereon. (ii) Whether the amounts paid to the District Mineral Foundation, the National Mineral Exploration Trust and the Goa Mineral Ore Permanent Fund Trust are consideration for supply and liable to GST, and the applicable GST rate thereon.

Issue (i): Whether royalty paid for mining lease is classifiable as licensing services for the right to use minerals including exploration and evaluation, and the applicable GST rate thereon.

Analysis: Royalty was treated as consideration paid for the right granted by the Government to extract minerals. The activity was found to fall under Heading 9973, specifically SAC 997337, covering licensing services for the right to use minerals including exploration and evaluation. The service was treated as supplied by the Government to a business entity and therefore taxable under reverse charge. The rate was linked to the applicable entry in the rate notification, being the rate for like goods involving transfer of title until 31.12.2018, and thereafter the amended residual rate under the notification.

Conclusion: The issue was answered in favour of Revenue. Royalty was held to be classifiable under SAC 997337 and taxable at 5% till 31.12.2018 and at 18% thereafter under reverse charge.

Issue (ii): Whether the amounts paid to the District Mineral Foundation, the National Mineral Exploration Trust and the Goa Mineral Ore Permanent Fund Trust are consideration for supply and liable to GST, and the applicable GST rate thereon.

Analysis: The contributions to the funds were held to be compulsory payments arising from mining operations and not voluntary donations. The functions of the trusts were connected with mineral exploration and related activities and were treated as part of the same licensing service relating to minerals. The payments were therefore regarded as made in the course of business and as consideration linked with the mining right. As the service was treated as one supplied by Government or the statutory bodies to a business entity, reverse charge applied. The applicable rate followed the same classification and notification structure as royalty.

Conclusion: The issue was answered in favour of Revenue. The contributions to DMF, NMET and GMOPFT were held taxable under SAC 997337 at 5% till 31.12.2018 and at 18% thereafter under reverse charge.

Final Conclusion: Both royalty and the statutory contributions connected with mining operations were held to constitute taxable services in the nature of licensing services for mineral rights, and the applicant was held liable to discharge GST on them under reverse charge at the rates specified for the relevant periods.

Ratio Decidendi: Mandatory payments made as a condition for the grant and continuation of mineral extraction rights constitute consideration for a taxable licensing service, and statutory mineral-fund contributions linked to such rights are not donations but part of the same taxable supply.

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