Government of Uttar Pradesh Licensing Services for Mineral Use Classified Under GST 18%

The Authority for Advance Ruling (AAR) classified the service provided by the Government of Uttar Pradesh under "Licensing services for the right to use minerals including its exploration and evaluation" at Serial No. 257, Heading 9973, Group 99733, sub-heading 997337. The service attracts a GST rate of 18% (9% CGST + 9% SGST) as per Notification No. 11/2017-CT (Rate). This ruling aligns with similar decisions from other states and the clarification by the Commissioner, SGST, Uttar Pradesh, regarding the GST rate on royalty received by the State Government.

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Issues Involved:
1. Classification of service provided by the Government of Uttar Pradesh.
2. Whether the service can be classified under Chapter number 9973 as "Licensing services for the right to use minerals including its exploration and evaluation."
3. Rate of GST on services provided by the Government of Uttar Pradesh for which royalty is being paid.

Issue-wise Detailed Analysis:

1. Classification of Service:
The applicant sought clarification on the classification of the service provided by the Government of Uttar Pradesh. The service involves granting a mining lease for the extraction of sand, which falls under tariff heading 2505 and is subject to GST at 5%. The Authority for Advance Ruling (AAR) examined the submissions and found that the issue falls under Section 97(2)(a) of the CGST Act 2017, related to the classification of goods or services.

2. Classification under Chapter 9973:
The applicant questioned whether the service could be classified under Chapter number 9973 as "Licensing services for the right to use minerals including its exploration and evaluation." The AAR observed that the Government provides licenses for the exploration of natural resources, requiring the licensee to pay fees such as annual licensing fees, lease charges, and royalties. This activity is considered a supply of service under the heading 9973, specifically under group 99733. The AAR concluded that the service should be classified under "Licensing services for the right to use minerals including its exploration and evaluation" at Serial No. 257, Heading 9973, Group 99733.

3. Rate of GST:
The applicant sought clarification on the rate of GST applicable to the services provided by the Government of Uttar Pradesh for which royalty is being paid. The AAR referred to Notification No. 11/2017-CT (Rate) dated 28-06-2017, which specifies the rates for heading 9973. It was observed that the rate for "Licensing services for the right to use minerals" is the same as the rate for the supply of like goods involving the transfer of title in goods. Consequently, the AAR determined that the applicable GST rate is 18% (9% CGST + 9% SGST).

The AAR also referenced similar rulings from other states, such as the Rajasthan Authority for Advance Ruling and the Appellate Authority for Advance Ruling, Odisha, which both upheld an 18% GST rate for similar services. Additionally, the Commissioner, SGST, Uttar Pradesh, had clarified that the rate of GST on royalty received by the State Government is 18%.

Ruling:
The AAR unanimously ruled that the service in question is classifiable under "Licensing services for the right to use minerals including its exploration and evaluation" at Serial No. 257, Heading 9973, Group 99733, sub-heading 997337 of the "annexure: Scheme of Classification of Service" to Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 (as amended), and attracts 18% GST (9% CGST + 9% SGST).

This ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.

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