GST PAID ON ROYALTY- ENTITLEMENT OF ITC ON THE PORTION OF ROYALTY

[Sadanand Bulbule]

GST PAID ON ROYALTY- ENTITLEMENT OF ITC ON THE PORTION OF ROYALTY

National Mineral Development Corporation Limited is India’s largest producer and exporter of iron ore. It is a Government of India enterprise. It conducts e-auction of iron ore for bulk use in the business by the potential bidders. On successful e-bidding, it issues tax invoice charging ‘Royalty & FDF” on the value of iron ore so auctioned. And thereafter, on the total value [value of iron ore plus royalty plus FDF], it charges 5% GST covered under HSN 2601. Based on such tax invoices issued by the NMDC, the buyers claim the full ITC as manifest therein.

However some adjudicating authorities are disallowing the claim of ITC paid to the extent of Royalty amount, saying that the buyers have not produced iron ore.

In my opinion, there is no such embargo under Section 16 & 17 to restrict ITC relating to the royalty amount paid to the NMDC Ltd which actually produces iron ore from mines. So the amount of royalty paid is the embedded cost of total value iron ore for the purpose Section 15 of the Act.

Query:

Is the action of the adjudicating authorities to disallow ITC on the portion of Royalty amount is justifiable in the absence of any specific provisions under Section 16 & 17 of the Act?

Experts to throw spotlight on this.

AI Summary

Debate on Input Tax Credit Eligibility for GST on Royalty Charges for Iron Ore Under Sections 16 and 17 The forum discusses the entitlement of Input Tax Credit (ITC) on GST paid for royalty charges on iron ore. The National Mineral Development Corporation Limited issues tax invoices for iron ore, including charges for royalty and GST. Some authorities have disallowed ITC claims on the royalty portion, arguing that buyers do not produce iron ore. Participants argue that there is no legal basis under Sections 16 and 17 of the GST Act to restrict ITC on royalty. The discussion includes interpretations of GST rules, relevant case law, and administrative practices, emphasizing that royalty should be considered part of the total value for GST purposes.