GST treatment of mining statutory levies and collection assignment: lessees liable under reverse charge; conditional exemption applies with reconciliation

GST on statutory levies charged in mining-royalty, seigniorage, DMF, MERIT and similar dues-is payable by the mining lease holders under the reverse charge mechanism; an intermediary contractor collecting those dues is not liable to discharge GST under forward charge. Book adjustments credited to the contractor are treated as internal settlements under the contract and do not constitute separate taxable supplies where GST on the underlying amounts has already been discharged, subject to documentary reconciliation. Assignment by a State of the right to collect royalty is conditionally exempt as a governmental supply, with the contractor liable only for any shortfall after end of contract certification and reconciliation.

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Issues: (i) Whether the Excess Royalty Collection Contractor (ERCC) / SIPL is liable to pay GST under forward charge on seigniorage fee, consideration amount and similar statutory levies collected from quarry/mining lease holders, or whether the mining lease holders are liable under reverse charge mechanism (RCM); (ii) Whether amounts book-adjusted to the contractor by the Director of Mines & Geology (including mineral revenues and revenues under cutter slab system) are taxable in the hands of the contractor; (iii) Whether services supplied by a State Government to an ERCC by assigning the right to collect royalty are taxable or exempt.

Issue (i): Whether SIPL/ERCC is liable to pay GST under forward charge on seigniorage/royalty/consideration amounts or whether mining lease holders pay GST under reverse charge mechanism.

Analysis: Entry 5 of Notification No. 13/2017-Central Tax (Rate) treats grant of mineral rights/assignment of collection rights as a supply for which GST liability arises under reverse charge on the recipient. The statutory levies such as royalty, seigniorage fee, DMF and MERIT are statutory dues of mining lease holders and fall within the same fiscal character as royalty. Notification No. 14/2018-Central Tax (Rate) inserted Entry 65B in Notification No. 12/2017-Central Tax (Rate) which provides a conditional exemption for services supplied by a State Government to an ERCC by assigning the right to collect royalty, subject to certification and reconciliation conditions at the end of the contract period.

Conclusion: The liability to discharge GST on royalty/seigniorage, DMF, MERIT and similar statutory levies rests with the mining lease holders under reverse charge mechanism. The ERCC is not liable to discharge GST under forward charge on those statutory levies.

Issue (ii): Whether book adjustments credited to the contractor (including mineral revenues corresponding to Government works and revenues under the cutter slab system) constitute taxable supplies in the hands of the contractor.

Analysis: The book adjustments operate as settlement mechanisms under the ERCC contract and represent reconciliation/adjustment of amounts due under the contractual framework. Where such adjusted amounts have already suffered GST at the appropriate stage (for example, works contracts for Government works or GST paid by lease holders under RCM), the adjustments do not create a new independent supply by the contractor. Documentary evidence and reconciliation are relevant to demonstrate that GST has been discharged on the adjusted amounts.

Conclusion: Book adjustments are settlement mechanisms and do not amount to separate taxable supplies by the contractor; GST, where applicable, is to be regarded as discharged at the appropriate stage subject to appropriate proof and reconciliation.

Issue (iii): Whether services supplied by a State Government to an ERCC by assigning the right to collect royalty are taxable or exempt.

Analysis: Entry 65B of Notification No. 12/2017-Central Tax (Rate), inserted by Notification No. 14/2018-Central Tax (Rate) dated 26.07.2018, exempts services supplied by a State Government to an ERCC by assigning the right to collect royalty, subject to the proviso that at the end of the contract period the ERCC certifies and reconciles GST paid by lease holders and pays any shortfall. The mechanism approved by the GST Council contemplates limiting ERCC liability to the differential amount, if any, to avoid double taxation.

Conclusion: The service supplied by the State Government to the ERCC by way of assigning the right to collect royalty is exempt under Entry 65B subject to compliance with the condition specified in the proviso; the ERCC is liable only for any shortfall as per the proviso.

Final Conclusion: The ERCC contractor is not liable to pay GST under forward charge on statutory levies collected from lease holders; statutory levies are payable by lease holders under RCM; book adjustments are settlement mechanisms not creating new tax liability for the contractor; and the assignment of the right to collect royalty by the State to the ERCC is conditionally exempt under Entry 65B, subject to end-of-contract reconciliation and payment of any shortfall.

Ratio Decidendi: Under the GST notifications cited, assignment by a State Government of the right to collect royalty is treated as a governmental supply that is conditionally exempt under Entry 65B, while statutory levies constituting royalty/ seigniorage/DMF/MERIT are liabilities of the mining lease holders and attract GST under reverse charge; book adjustments that merely settle contractual dues do not constitute new taxable supplies where GST on the underlying amounts has already been discharged.

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