TaxTMI 
TaxTMI 
2019 (9) TMI 695
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....ng, a reference to such a similar provision under the CGST or MP GST Act would be mentioned as being under the GST Act. 3. BRIEF FACTS OF THE CASE: 3.1 M/s. NMDC Limited (hereinafter referred to as 'the Applicant'), having their registered office at NMDC Limited, Majhgawan, Diamond Mining Project ,488001 and are registered with the GSTN holding GSTIN 23AAACN7325A2Z2. 3.2 The Applicant is engaged in mining and sale of "rough diamonds". 3.3 Thus the Applicant have approached the Authority for limited and specific ruling about clarification on classification of royalty payments to Government in respect of Mining lease under "Licensing services for Right to use minerals falling under the heading 9973"and determination of the liability to pay tax on contributions made to District Mineral Foundation (DMF) and National Mineral Exploration trust (NMET) as per MMDR Act, 1957. 4. QUESTIONS RAISED BEFORE THE AUTHORITHY:- The following questions have been posted before the Authority:- 4.1. Whether royalty paid in respect of Mining Lease can be classified under "Licensing services for the right to use minerals including its exploration and evaluation falling under the heading 9973 attrac....
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....the same rate of tax as applicable on supply of like goods. VI) Further, Section 9B and 9C of Mines and Minerals (Development & Regulation) Act, 1957 mandates that NMDC shall contribute 30% of royalty to District Mineral Foundation and 2% of Royalty to National Mineral Exploration Trust. In this regard, the Applicant seeks clarifications whether such statutory contributions made amounts to "Supply" and whether the same is liable for GST under reverse charge. 5.5 Admissibility of Application As per Section 97(2) of CGST Act, advance ruling can be sought for following question under GST: (a) classification of any goods or services or both; Based on above, the Applicant requests to admit its application in respect of clarification sought on classification of service by way of royalty paid in respect of Mining Lease. Further, as per Section 97(2) of CGST Act, 2017, advance ruling can be sought for following questions under GST: (e) determination of the liability to pay tax on any goods or services or both; (g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, wit....
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....der of a mining lease granted on or after the commencement of this Act shall pay royalty in respect of any 1 [mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee] from the leased area at the rate for the time being specified in the Second Schedule in respect of that mineral". 7. The term 'Royalty' is not defined in MMDR Act. However, the meaning of the word royalty has been considered in some judicial decisions. Many of these judicial decisions have been summed up in the judgement delivered by the Supreme Court in the case of the India Cement Ltd., etc. v. State of Tamil Nadu, etc. (AIR 1990 SC 85) = 1989 (10) TMI 53 - SUPREME COURT. The case was primarily on the legality of the cess on royalty. However, the meaning and concept of royalty has also been discussed in the judgement in an incidental manner. Although royalty has not been explicitly defined, the Supreme Court held that royalty is separate and distinct from land revenue and that it is not related to land as a unit. On the other hand, royalty is payable on a proportion of the minerals extracted and it has relationship to mining as also to the mineral won from the mine under a co....
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....y Dr. K.K. Chatterjee "Royalty means dues payable to a land owner for mining rights" 13. Without prejudice to the above, the Applicant would like to draw reference to the meaning of the expression 'renting' in common parlance which indicates 'allowing', 'permitting or granting access', 'use', 'entry', 'occupation' 'use or any such facility' which infers the enjoyment of immoveable property on 'as is' basis. The expression 'renting' cannot be extended to activities like 'exploration', 'extraction' etc. Therefore, mining land which is used for purpose of extraction of minerals and by which the immoveable property cannot be used on "as is" basis, will not fall within the ambit of 'renting of immovable property'. 14. Upon harmonious reading from the above, what is intended to be transferred is the right and title to the interest over immoveable property (i.e. mineral). Such an interest over immoveable property cannot be equated with 'Renting of Immoveable Property'. 15. Further, the Applicant would like to quote Section 65(105)(zzzz) of Finance Act, 1994, which defines "Immovable Property" in relation of "Renting of Immovable Property" 16. As per the said Section, immovable prope....
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....he same rate of tax as applicable on the supply of like goods involving transfer of title in goods. Accordingly, in such cases, the relevant tax rate as applicable on the underlying natural resource would be applicable on the amount of royalty paid. 23. The Applicant wishes to quote the recent decision by Haryana Authority for Advance Ruling in the case of M/s. Poineer Partners, wherein it was held that Royalty paid towards mining rights of 'stone boulders' taxable at 5% under 'reverse charge'. The extract of the relevant para in stated below: "the services for the right to use minerals including its exploration and evaluation, as per sr. No 257 of the annexure appended to notification no. 11/2017- CT (Rate), dated 28.06.2017 is included in group 99733 under heading 9973. Hence, it attracts the same rate of tax as on supply of like goods involving transfer of title in goods. As per notification no. 1/2017-CT (Rate), dated 28.06.2017 under the CGST Act, 2017 and the corresponding State Tax notification under HGST Act, 2017, Schedule - I the stone boulders extracted by the applicant attract 5% GST (2.5% CGST + 2.5% HGST) as covered under HSN 2516 (At Sr. No. 124 of the notificatio....
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....l tax (Rate), Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding the specified services are chargeable to tax under reverse charge. Therefore, the Applicant wishes to seek clarification on liability to pay tax under reverse charge on such contribution made to the funds. 29. In this regard the Applicant would like to quote Section 7 of CGST Act, 2017. As per Section 7, supply includes: "(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business" 30. Therefore, it is to be noted that liability to pay will result only if all the following conditions are satisfied: * * There is a supply in terms of Section 7 * * The supply is in the course of or furtherance of business * * The supply is not exempt under Section 7(2) or Section 11(1) 31. In order to determine whether tax is payable on payment to District Mineral Foundation following has to be tested: * * Whether there is supply of goods or service by the trust to which such paymen....
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....p for an independent purpose do not fall under the definition of Government or local authority. At the max such trust may fall under the definition of Governmental Authority which is defined in Explanation of Section 2(16) of IGST Act. The same is stated below for your reference. the expression "governmental authority" means an authority or a board or any other body,- (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Government, with ninety per cent or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution. 37. Based on above, the Applicant wishes to submit that services provided by Governmental Authority is not covered under reverse charge and therefore the supplier is liable to charge GST and remit to the credit of Government. 38. It is to be noted that the trust established under Section 9B(1) of the MMDR Act does not fall under the definition of Government. The same is an independent non-profit body to carry out operations entrusted to it. Since the payment is not made to government, there is no requirement of payment of GST under reverse charge in....
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....11(1) 46. The Applicant would like to state that there is no supply made by the trust to the Applicant in return of payment made to such trust (i.e., as a quid pro quo for the service received). As stated above, the objective of the trust is exploration of minerals that would facilitate high growth in the mining sector. There is no service/supply made to the payee. The payment made by the Applicant is purely in the nature of contribution and cannot be regarded as consideration. 47. Further, as seen in Section 7, one also has to evaluate whether the supplier is in the course of business. It is pertinent to note that the trust is a non-profit body organization and not involved in the course of any business, trade or commerce. Based on the above, there is no supply made in terms of Section 7 therefore liability to pay tax does not arise. 48. Without prejudice to the above, the Applicant wishes to state that the liability to pay tax under reverse charge on the said payments will arise only if such trust/fund falls under the definition of Government or local authority. 49. As per Section 2(53) of CGST Act, 2017, government means "Central Government" and as per Section 2(53) of Madhy....
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....title in goods. As per notification no. 1/2017-CT (Rate), dated 28.06.2017 under the CGST Act, 2017 and the corresponding State Tax notification under HGST Act. 2017, Schedule I the stone boulders extracted by the applicant attract 5%GST (2.5 % CGST + 2.5% HGST) as covered under HSN 2516 (At Sr. No. 124 of the notification)." Based on the above, the Applicant wishes to submit that the entries prescribing the rate of tax for the service code 9973 does not specifically cover the Licensing services for the right to use minerals including its exploration and evaluation and therefore it will be covered under the residuary entry "leasing or rental services, with or without the operator, other than (i), (ii), (iii), (iv) and (v) above", with applicable tax rate as the same rate of tax as applicable on the supply of like goods involving transfer of title in goods. Accordingly, in such cases, the relevant tax rate as applicable on the underlying natural resource would be applicable on the amount of royalty paid. Since, rough Diamond attracts 0.25% GST Rate, royalty paid for mining of rough Diamonds will attract 0.5% GST Rate. Submission in relation to Contribution to District Mineral Fund....
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....onsideration towards mining right. 8. In order to tax a particular transaction as "Supply'' under Section 7 of CGST Act. there should be supply of goods or services agreed to be made for a consideration. In the instant case, supply of service is missing and therefore the main test of levy of tax under Section 7 is not satisfied. No liability under Reverse charge 9. Without prejudice to the above, assuming but not admitting that there is a service provided by the trust in lieu of contribution made by the Applicant, the said service will not under notified services under Reverse charge. 10. As per Serial No. 5 of Notification 13/2017 - Central Tax (Rate), dated June 28. 2017, the recipient is liable to pay tax under reverse charge for following service: Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outsi....
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....ibution to trusts is not for obtaining mining rights but is towards interest and benefit of affected people and for exploration activities. Therefore, the payment made to trust cannot be linked to mining rights and cannot be included in the valuation of royalty. 16. Further, it is submitted that even the Sectoral FAQs only talk about royalty paid under "Licensing services for the right to use minerals including its exploration and evaluation". Contribution to DMF/NMET Trusts are not mentioned under such services in FAQ. Therefore, the same is not liable to GST under reverse charge. 17. We request your good office to consider our above submissions and pass such other orders and directions as may be deemed proper and necessary. 6. CONCERNED OFFICER'S VIEW POINT: The Concerned Officer in his view submitted that the service by way of granting of license to extract minerals is classified under Tariff Heading 99733 and the additional contributions made to DMF and NMET are nothing but additions to the royalty and shall be treated under addition of value of original supply. 7. DISCUSSIONS AND FINDINGS: The arguments and assertions made by the applicant along with supporting case law ....
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.... to the transaction of the applicant. They are: Heading 9973 Leasing or rental services with or without operator Group 99731 Leasing or rental services concerning machinery and equipment with or without operator Group 99732 Leasing or rental services concerning other goods Group 99733 Leasing services for the right to use intellectual property and similar products Since the service received by the applicant is not covered under Group 99731 or Group 99732 and hence it may get covered under Group 99733, i.e. leasing service for the right to use 'other similar products'. 7.5 Additionally, as per the guidelines on the Scheme of Classification issued by the Central Board of Indirect Taxes and Customs, the classification of this service is clarified under the above mentioned heading, i.e. 99733 only. In this respect, the relevant entry from the guidelines is reproduced below: 997337 Licensing services for right to use minerals including its exploration and evaluation This service code includes licensing services for the right to use, mineral exploration and evaluation information, such as mineral exploration for petroleum, natural gas and non-petroleum deposits From the abov....
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....ax, it must fall within the meaning of "supply' as defined by Section 7 of the CGST Act, 2017. That, the Section 7 makes it clear that any activity shall be called supply only if it fulfills two important conditions: A) It should be in the course of or furtherance of business B) It should be for a consideration 7.10 In the case of contributions made to the DMF and NMET, it is important to note that the applicant is a recipient of this service, and not the supplier. Since it is an inward supply for the applicant and not the outward supply, it becomes important to judge the taxability of the transaction from the point of view of the supplier, and not the recipient. This stands true regardless of whether the given supply is subject to reverse charge mechanism. In other words, whether or not something is taxable must be examined from the point of view of the supplier, even if the tax liability thereon falls upon the recipient under Section 9 of the Act. 7.11 Thus, in the given context, it is important to question whether the transaction or activity carried out by the DMF or NMET falls in the purview of "supply" within the meaning of it as prescribed by Section 7 of the CGST Act ....
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....he Central Government to the applicant was for a consideration payable in the form of royalty. It can be seen that the payments made to the DMF and the NMET are also part of the same royalty, and consideration paid in respect of the same supply. 7.14 For this purpose, the definition of 'consideration' is important, and it is defined in the Act as follows: "Consideration" in relation to the supply of goods or services or both includes- (a) Any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; 7.15 The first question is whether the payment made to the DMF and NMET are "in respect of, in response to, or for the inducement of, the supply of service by way of granting leasing rights'? For this purpose, we may note the provisions of the MMDR Act, 1957 which provides for the payment of royalty as well as the contributions made to the DMF and the NMET. It is interesting to note that, as per Section 9 of the MMDR Act, the payment of royalty is 'i....