GST on NPV

[Bibhu Tripathy]

For the developmental requirements, forests are diverted for non-forest purposes. To compensate for the loss , the law requires that the Net Present Value (NPV) of the diverted forest is calculated for a period of 50 years, and recovered from the “user agency” that is “diverting” the forests.

In this regard the lease holder of the mines pay NPV to the Govt. My query is whether GST is leviable on such NPV.

With Regards

[Surjeet Singh]

Heading 9991: Services provided by the Central Government, State Government, Union territory or local authority by way of assignment of right to use any natural resource where such right to use was assigned by the Central Government, State Government, Union territory or local authority before the 1st April, 2016:

Provided that the exemption shall apply only to tax payable on one time charge payable, in full upfront or in installments, for assignment of right to use such natural resource. GST Rate NIL.

[Bibhu Tripathy]

But the exemption is on Upfront fees in respect of the Mines which have been leased upto 01.04.2016. Please consider this

[Mahir S]

The NMV Payable is nothing but Royalty.

Such royalty paid in respect of Mining Lease is a part of the consideration payable for the Licensing services (in your case payment of NPV too), for right to use minerals including exploration and evaluation falling under the head 997337, which is taxable.

Also, section 15(2) of the CGST Act, it is clearly mentioned that any amount of any taxes, duties, cesses, fees and charges levied UNDER ANY LAW for the time being in force other than the GST related Acts are includible in the value of supply.

In view of above, it appears that GST is leviable, (even if the word Royalty is not taken into consideration herein.)

[KASTURI SETHI]

Is there any agreement executed between you and Govt. ? For correct classification of supply of service, it is must to go through terms and conditions of the agreement, if any. Correct classification is an absolutely necessary for correct payment of tax. Rate of tax may be same for two services even then correct classification is required.

[Venkataprasad Pasupuleti]

Dear sir,

It can be said that GST is not liable on the stated transaction. The tribunal decision in case of Dy Conservator of Forest & Dy Field Director Versus CCE, Jaipur 2018 (4) TMI 777 - CESTAT (New Delhi), Bureau of Energy Efficiency Vs CST 2018-TIOL-1394-CESTAT-DEL = 2018 (4) TMI 771 - CESTAT NEW DELHI can be referred.

The GST department is high likely to dispute it and raise demands. If you wanted to avoid the dispute & be risk free, GST may be paid & take ITC.

[Bibhu Tripathy]

venkatji,

I have gone through the said decision. The relevant order is at sl.no. 5 which is produced below

'The Regulation makes it mandatory for such labeling. Even otherwise, the fee collected from such manufacturers who approached the assessee-Appellants for labeling is for statutory performance as per law. We note that the same cannot be subjected to Service Tax liability as per the provision of taxable service. Regarding further disposal of the fee collected, the learned Chartered Accountant submitted that, as per law the assessee-Appellants are required to deposit in a designated fund which will be used for organizational expansion of the assessee-Appellants, their expansion and further requirements are mandated by the Government Regulations and they are under the direct control of the Ministry of Power supported by budgetary framwork. In case of winding up of the assessee-Appellants' organization, the whole of the assets and finance will lie with the Central Government under whose authority they are created.'

In this case compensation is paid for conversion of forest land and it is not any fee. Moreover it is a compensatory forest afforestation programme. To me it appears to be a service . It is taxable.

[Bibhu Tripathy]

Paying the GST and taking the itc is the best option as suggested by you

[Venkataprasad Pasupuleti]

Dear sir,

It is not a consideration based on the principal that quid pro quo is absent and also payments are prescribed under a statute. This needs to be tested judicially under GST law. Till then, better to pay & take ITC.

[KASTURI SETHI]

Dear Querist,

NPV is the only method to calculate the amount at the Net Present Value i.e. value as on today whereas diversion was going for so many years. As you have mentioned, it is compensation for the loss due to diversion of forests for non-forest purpose. So in my view, this activity/transaction is covered under HSN 999794 attracting GST @18% (Read with Schedule-II Serial No.5 (e). RCM applicable as per serial no.5 of Notification No.13/2017-CT(R) dated 28.6.17 as amended. This service does not fall in the exclusion clause.

AI Summary

GST leviability on Net Present Value payments for forest diversion is contested between statutory charge and taxable consideration.
Whether GST is leviable on Net Present Value (NPV) paid for diversion of forest land is contested: NPV may be characterised either as a statutory compensatory charge outside GST or as consideration for a right to use natural resources (royalty/licence) and thus includible in the value of supply under valuation rules. Classification depends on statutory scheme and agreement terms, and carries administrative dispute risk; some advise paying GST and claiming input tax credit pending judicial or administrative resolution.