Coal mining contractor provides services not goods without ownership rights over excavated coal attracting 18% GST under HSN 9986

The AAR Maharashtra ruled that the applicant's coal mining activities constitute supply of services, not goods, as the applicant lacks ownership rights over the excavated coal which belongs to the mine owner. The services are classified under HSN 9986 attracting 18% GST rather than HSN 2701 at 5%. Government levies like royalty, MMDR, DMF fund, and reserve price paid directly by the mine owner to authorities are excluded from the transaction value for GST purposes, as the applicant has no liability for these amounts under the agreement terms.

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Issues Involved:
1. Whether the activity carried out by the Applicant under the Agreement is a supply of Goods or a supply of Service and the applicable GST rate.
2. Whether the Applicant should raise an invoice under MGST/CGST or IGST considering the entire activity takes place in Maharashtra.
3. Whether the contract can be treated as a single consolidated contract or a divisible contract with different GST treatments.
4. Whether amounts like Royalty, MMDR, DMF Fund, Cess, Stowing Excise Duty, Reserve Price, etc., which are payable directly by KPCL to the Government, should be considered for determining the transaction price.

Detailed Analysis:

Issue 1: Supply of Goods or Services and Applicable GST Rate

5.5 The applicant sought clarity on whether their activities under the agreement with KPCL constitute a supply of goods or services and the applicable GST rate. The authority examined the agreement and found that the applicant is responsible for developing, operating, and maintaining the mines, excavating coal, and delivering it to KPCL. The coal belongs to KPCL, and the applicant has no ownership rights over it. Therefore, the applicant's activities constitute a supply of services, not goods.

5.5.5 The relevant GST rate for these services falls under Heading 9986 as "Support services to mining," attracting an 18% GST rate as per Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, amended by Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018.

5.5.7 The authority concluded that the impugned services related to mining of coal are covered under Sr. No. 24 (iii) with effect from 25.01.2018, attracting 18% GST.

Issue 2: Invoice under MGST/CGST or IGST

4.1 During the preliminary hearing, the applicant withdrew Question No. 2, which sought clarity on whether the applicant should raise an invoice under MGST/CGST or IGST.

Issue 3: Single Consolidated Contract or Divisible Contract

4.1 Similarly, the applicant withdrew Question No. 3, which sought clarity on whether the contract should be treated as a single consolidated contract or a divisible contract with different GST treatments for each component.

Issue 4: Consideration of Amounts like Royalty, MMDR, DMF Fund, Cess, etc., for Transaction Price

5.6 The applicant sought clarity on whether amounts like Royalty, MMDR, DMF Fund, Cess, Stowing Excise Duty, Reserve Price, etc., which are payable directly by KPCL to the Government, should be considered for determining the transaction price.

5.6.1 The authority observed that these amounts are shown in the invoices as directed by KPCL but are not paid to the applicant. These amounts are due from KPCL to the Government and are paid directly by KPCL. Article 6.1.3 of the agreement specifies that KPCL shall pay all taxes and levies directly to the Government.

5.6.3 The authority noted that GST is payable by KPCL to the applicant, while all other taxes are payable by KPCL to the Government. Therefore, these amounts are not includible in the transaction value for GST purposes.

5.6.6 The provisions of Section 15 of the CGST Act, 2017, were examined. The value of supply includes all taxes, duties, cesses, fees, and charges levied under any law, except those specifically excluded. Since the amounts towards Royalty, MMDR, DMF Fund, and Reserve Price are payable by KPCL directly to the Government and not to the applicant, they are not includible in the value of supply.

5.7.2 The jurisdictional officer's submission that these amounts should be included in the value of supply was rejected. The authority clarified that KPCL incurs these expenses on its own behalf and not on behalf of the applicant.

5.8 The authority concluded that the amounts towards Royalty, MMDR, DMF Fund, and Reserve Price, payable and paid by KPCL directly to the Government, are not includible in the value of supply for GST purposes. However, if it is agreed in the future that these amounts are payable to the applicant, they will be included in the value of supply and taxed at 18% GST.

Order:

Question 1: The activity carried out by the Applicant under the Agreement is a supply of Service and will be chargeable @ 18% as Support Services to Mining under Heading 9986.

Question 2: Not answered as the question was withdrawn by the applicant.

Question 3: Not answered as the question was withdrawn by the applicant.

Question 4: The amounts towards Royalty, MMDR, DMF Fund, and Reserve Price, payable and paid by KPCL directly to the Government, are not includible in the value of supply for GST purposes.

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