2021 (8) TMI 580 - AAR - GST

Inclusion of NMET and DMF contributions in GST under RCM by AAR

In Re: M/s. Andru Ramesh Babu,

The Authority for Advance Ruling (AAR) determined that contributions to the National Mineral Exploration Trust (NMET) and District Mineral Foundation ... Valuation of supply - mining services - Contributions to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR) read with National Mineral Exploration Trust Rules, 2015 (‘NMETR’) and Mines and Minerals (Contribution to District Mineral Foundation) Rules, 2015 - inclusion of consideration towards supply of mining service by Andhra Pradesh Government or not - Reverse Charge Mechanism - HELD THAT:- Contribution to National Mineral Exploration Trust (NMET) forms part of the Consolidated Fund of India. The applicant contends that the NMET collections by the Mining Department are not proceeds from business since there is no supply by the Government, but revenues collected by the Government of India. Hence, the question of Levy of GST does not arise. Contribution to District Mineral Foundation (DMF) is nothing but payment of tax and not a consideration towards supply. The applicant submits that contribution to the DMF is not consideration towards supply of services but a statutory levy of taxes - Contribution to District Mineral Foundation (DMF) is paid to the non -profit trust (DMF Trust) established by the State Government and not to the State Government even if it is assumed that DMF contribution is a consideration towards supply, the applicant submits that the DMF Trust and the State Government are two different persons. The payment of tax under Para 5 of Notification 13/2017 dated 28th June 2017 on RCM basis is not applicable to the DMF Trust. Hence, the applicant being recipient of service from DMF Trust is not liable to pay the GST on RCM basis. The levy if at all applicable is on forward charge and shall be liable to be paid by the supplier of service i.e. DMF Trust. DMF Trust is not local authority within the scope of Section 2 (69) of the GST Law. Royalty is only a measure of NMET and DMF contributions and cannot be equated with NMET and DMF and that NMET and DMF are not in respect of single supply of service i.e. licensing that warrants clubbing of all amounts i.e. Royalty, NMET and DMF under Section 15 of the GST law for the purpose of valuation - There is no correlation between the Royalty payments and the NMET and DMF except for measurement of NMET and DMF which is based on Royalty. The charges levied under MMDR Act are meant to be the charges levied under any law other than the GST Act. Thus, the payments made to DMF and NMET are very well includible under the ‘value of supply’ in addition to the royalties paid and can be called a ‘total consideration’ received for granting mining and leasing rights - The service provided is only the license to extract mineral ore and also the right to use such minerals extracted is a single service where the consideration is payable under three heads and in case any one of the payments is not made, the service provider, that is the Government would not issue the permit to use the mineral ore so extracted. Hence it forms the value of the supply under Section 15 and the charges for DMF and NMET being compulsory payments, would only amount to application of the amounts paid and still would form the value of the taxable services. The service is a single service there are no separate service providers for royalty, DMF and NMET and in all cases the Government which has provided the license to mine mineral ore and permitted the use of such mineral ore mined would be the person who has provided the service - As per Entry No. 5 of Notification No. 13/2017-Central Tax (rate), GST on services supplied by Central Government State Government or Local Authority, to a business entity needs to be paid by such business entity under RCM. Issues Involved:1. Whether contributions to National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF) qualify as consideration towards the supply of mining services by the Andhra Pradesh Government.2. Whether such contributions are included for the purpose of value of supply chargeable to GST under the Reverse Charge Mechanism (RCM) in the hands of the applicant service recipient.Issue-wise Detailed Analysis:1. Qualification of Contributions as Consideration Towards Supply of Mining Services:The applicant, a mining leaseholder, argued that contributions to NMET and DMF are statutory levies and not consideration for any service provided by the government. The applicant emphasized that these contributions are mandated by the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR) and related rules, and are not linked to any specific supply of services.The applicant contended that:- Contributions to NMET are credited to the Consolidated Fund of India, indicating they are not proceeds from business activities.- Contributions to DMF are statutory levies similar to taxes, as affirmed by the Supreme Court in the Federation of Indian Mineral Industries case.- DMF Trust, being a separate legal entity from the State Government, cannot be considered as providing a service to the applicant.The applicant also argued that NMET and DMF contributions should not be clubbed with royalty payments for GST valuation purposes, as they are distinct and serve different purposes.2. Inclusion of Contributions in Value of Supply Chargeable to GST under RCM:The Authority for Advance Ruling (AAR) examined whether NMET and DMF contributions should be included in the value of supply for GST purposes. The AAR noted that under Section 7 of the CGST Act, 2017, GST is applicable on any supply made for consideration in the course or furtherance of business. The activities undertaken by NMET and DMF for public welfare were considered as business activities, making the contributions a form of consideration.The AAR emphasized that:- Section 15(2) of the CGST Act includes taxes, duties, cesses, fees, and charges levied under any law in the value of supply if charged separately by the supplier.- The contributions to NMET and DMF are statutory obligations linked to the mining lease and are therefore part of the total consideration for the supply of mining services.- The service provided by the government is a single service (granting mining rights) with consideration payable under three heads: royalty, NMET, and DMF. Failure to make any of these payments would result in the government not issuing the mining permit.Ruling:The AAR ruled that contributions to NMET and DMF qualify as consideration towards the supply of mining services by the Andhra Pradesh Government. Consequently, these contributions are included in the value of supply and are chargeable to GST under the Reverse Charge Mechanism in the hands of the applicant service recipient.