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

Input Tax Credit entitlement on GST charged for royalty hinges on classification, invoicing and reverse charge incidence.
Dispute centers on whether GST charged on a separately-stated royalty component in iron ore invoices affects buyers' entitlement to input tax credit. Claimants invoke Section 16 entitlement and Section 15 valuation principles to treat royalty as part of the transaction value of ore; counter-arguments stress classification (goods v. licencing service), correct incidence under the reverse charge mechanism, and invoicing practice. Appellate findings reproduced note that separate charging at a higher rate may cause excess GST collection, implicating refund or reversal remedies, while higher judicial determination on the nature of royalty remains pending.