State Government's Mineral Licensing Service Taxed at 18% GST under Reverse Charge Mechanism

The State Government's service of granting the right to use minerals to a mining applicant was classified under Heading 9973, sub-heading 997337, as "Licensing services for the right to use minerals." The service attracted an 18% GST rate (9% CGST + 9% SGST) based on clarificatory notifications. The applicant was deemed liable to discharge the GST under the reverse charge mechanism as they did not fall under the exclusion clause for renting immovable property, as per Notification No. 13/2017-CT(Rate).

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Issues Involved:
1. Classification of service provided by the State Government for which royalty is paid.
2. Rate of GST applicable on the services provided by the State Government.
3. Applicability of Notification No. 13/2017-CT(Rate) and whether the applicant is liable to discharge GST under the reverse charge mechanism.

Detailed Analysis:

1. Classification of Service:
The applicant, engaged in mining activities on leased land, sought to classify the service of granting the right to use minerals under Notification No. 11/2017-CT (Rate). The service was determined to fall under Tariff Heading 9973, specifically sub-heading 997337, which covers "Licensing services for the right to use minerals including its exploration and evaluation." This classification is consistent with the annexure attached to the notification and the nature of the service provided by the State Government.

2. Rate of GST:
The applicable GST rate for the service was discussed in light of various amendments to Notification No. 11/2017-CT (Rate). Initially, the service fell under a residual entry attracting the same rate as on the supply of like goods involving transfer of title. However, subsequent amendments, particularly Notification No. 27/2018-CT (Rate), clarified that the service attracts an 18% GST rate (9% CGST + 9% SGST). This clarification was based on the legislative intent to resolve any unintended interpretations and was deemed retrospective in effect, aligning with the Supreme Court's stance on clarificatory notifications.

3. Applicability of Notification No. 13/2017-CT(Rate):
The applicant questioned whether they were liable to pay GST under the reverse charge mechanism as per Notification No. 13/2017-CT(Rate). The notification stipulates that services supplied by the government to a business entity, excluding certain services like renting of immovable property, are subject to reverse charge. The service in question, "Licensing services for the right to use minerals," does not fall under the exclusion for renting immovable property. Therefore, the applicant, being the recipient of the service, is liable to discharge the GST under the reverse charge mechanism.

Ruling:
1. Classification of Service: The service provided by the State Government to the applicant is classified under Heading 9973, specifically sub-heading 997337, as "Licensing services for the right to use minerals including its exploration and evaluation."
2. Rate of GST: The service attracts an 18% GST rate (9% CGST + 9% SGST).
3. Liability under Reverse Charge Mechanism: The applicant is liable to discharge the tax liability under the reverse charge mechanism as per Notification No. 13/2017-CT(Rate), as they are not covered under the exclusion clause for renting immovable property.

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