Classification of Gujarat State's Mineral Licensing Service under GST

The service provided by the State of Gujarat, involving licensing rights to use minerals for exploration and evaluation, was classified under Heading 9973, specifically sub-heading 997337. The service did not fit under specific items of Tariff Heading 9973 but fell under the residual entry. The rate of GST applicable to this service, for which royalty is paid, was determined to be 18% (9% CGST + 9% SGST) based on relevant notifications and legislative intent.

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Issues Involved:
1. Classification of service provided by the State of Gujarat.
2. Applicability of Tariff Heading 9973 for the service.
3. Rate of GST on the services provided by the State of Gujarat for which royalty is paid.

Detailed Analysis:

Issue 1: Classification of Service Provided by the State of Gujarat

The applicant, engaged in mining activities, sought clarification on the classification of the service provided by the State of Gujarat under Notification No. 11/2017-CT (Rate) dated 28.06.2017. The applicant argued that the service of transferring the right to use minerals, including exploration and evaluation, should fall under Chapter 9973. The applicant believed that the service could be classified under item No. (iii) "Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment, or other valuable consideration" or item No. (viia) "Leasing or renting of goods."

The Authority for Advance Ruling (AAR) analyzed the nature of the service and concluded that the service provided by the State of Gujarat is classifiable under Heading 9973, specifically under sub-heading 997337, which pertains to "Licensing services for the right to use minerals including its exploration and evaluation." The AAR referred to the Annexure of Notification No. 11/2017-CT (Rate), which defines Service Accounting Codes (SAC) for various services, confirming that the service received by the applicant falls under SAC 997337.

Issue 2: Applicability of Tariff Heading 9973

The applicant contended that the service could be classified under item No. (iii) or item No. (viia) of Tariff Heading 9973. The AAR examined the relevant provisions and concluded that the service of licensing the right to use minerals does not fit under item No. (iii) or item No. (viia). Instead, it falls under the residual entry No. (viii) of Serial No. 17 of Notification No. 11/2017-CT (Rate). The AAR emphasized that the service is not a lease of goods but rather a licensing service for the right to use minerals, which is appropriately covered under the residual entry.

The AAR also referred to the Sectoral FAQ published by the C.B.E. & C., which categorically states that royalty payments for licensing services for the exploration of natural resources are treated as supply of services. This further supports the classification of the service under SAC 997337.

Issue 3: Rate of GST on the Services Provided by the State of Gujarat

The applicant sought clarification on the rate of GST applicable to the service for which royalty is paid. The AAR referred to Notification No. 11/2017-CT (Rate) and subsequent amendments, which specify the GST rates for various services under Heading 9973. The AAR concluded that the service of licensing the right to use minerals, including its exploration and evaluation, attracts an 18% GST rate (9% CGST + 9% SGST).

The AAR also referred to the 31st GST Council Meeting and the subsequent amendment of Notification No. 11/2017-CT (Rate) by Notification No. 27/2018-CT (Rate), which clarified the GST rate applicable to the right to use intellectual property and similar products other than IPR. The AAR emphasized that the legislative intent was to apply an 18% GST rate to such services, and this rate is applicable from the date of Notification No. 11/2017-CT (Rate).

Ruling:

1. The service provided by the State of Gujarat is classifiable under Heading 9973, specifically under sub-heading 997337, as "Licensing services for the right to use minerals including its exploration and evaluation."

2. The service cannot be classified under item No. (iii) or item No. (viia) of Tariff Heading 9973. Instead, it falls under the residual entry No. (viii) of Serial No. 17 of Notification No. 11/2017-CT (Rate).

3. The rate of GST applicable to the service provided by the State of Gujarat for which royalty is paid is 18% (9% CGST + 9% SGST).

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