TaxTMI 
TaxTMI 
2019 (10) TMI 1091
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....nes and stone quarry lands. The applicant is quarrying building stones and sells it to the customers. Building stones attracts GST at 5% under Heading 25169020 in Schedule I. 3. The Applicant has entered into Quarrying lease/ license agreement for "building stones' with the Government of Karnataka (Department of Mines and Geology) and is required to pay royalty @ Rs. 60 per MT of building stones as per the Mines and Minerals (Development & Regulation) Act, 1957 ("MMDR Act") read with Karnataka Minor Mineral Concession Rules, 1994 ("KMMC Rules"). The Applicant is also contributing 30% of royalty amount to District Mineral Foundation ("DMF") as per the MMDR Act read with Karnataka District Mineral Foundation Rules, 2016 ("KDMF Rules"). The applicant has been paying GST on reverse charge under heading 997337 at 18% on payments made towards royalty and DMF as per Notification 13/2017 Central Tax (Rate) dated June 28, 2017, i.e. Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding the specified services, which are chargeable to tax under reverse charge. 4. The Applicant seeks Advance Ruling on the following qu....
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....and which is not taxable under GST. Sharing of profit will not be a supply from one person to another subjected to levy of GST. Therefore, in their view, royalty payment is not subject to GST since there is no 'supply'. 6. The applicant further submitted that payment of royalty as per MMDR Act read with KMMC Rules is not for service of renting of immovable property, but it is licensing service for right to extract minerals. The payment of royalty, even if it is taxable, should be classified as licensing service for right to extract minerals and taxed at 5% (being the rate of tax for supply of Building stones). Royalty is in the nature of periodical payments to be made by the lessee under his covenants in consideration of the various benefits which he is granted by the lessor. Royalty on quarrying / mining is collected by the State Government for right given to the applicant to extract mineral and is payable based on quantum mineral removed or consumed. 7. The applicant submitted that the term 'Royalty' is not defined in MMDR Act/KMMC Rules. However, applicant has referred some judicial decisions to get the meaning of royalty. Many of these judicial decisions have been summed up i....
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....r a specified period) for cash, deferred payment or other valuable consideration. Same rate of central tax as on supply of like goods involving transfer of title in goods (iv) Any transfer of right in goods or of undivided share in goods without the transfer of title thereof. Same rate of central tax as on supply of like goods involving transfer of title in goods (v) Leasing of aircrafts by an operator for operating scheduled air transport service or scheduled air cargo service by way of transaction covered by clause (f) paragraph 5 of Schedule II of the Central Goods and Services Act, 2017. 2.5 Provided that credit of input tax charged on goods used in supplying the service has not been taken. (vi) Leasing or rental services, with or without operator other than (i), (iii), (iv) and (v) above. Same rate of central tax as applicable on supply of like goods involving transfer of title in goods. 9. Further applicant submitted that the Government has clarified that licensing services provided for exploration of natural resources would be covered under reverse charge mechanism. Services by the Government in the nature of "Renting of Immovable pro....
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....f any supply of goods or services. Being so, mere payment of a statutory amount to the District Mineral Foundation shall not qualify as supply of goods or services under GST Act. Once there is no supply of goods or services, question of levying any CGST or SGST does not arise as the taxable event itself has not occurred in this case. The trust established does not fall under the definition of Government as it is an independent body established by Government. Hence, contribution to DMF would not be subject to reverse charge in the hands of the Applicant. 12. Further the applicant made the additional submission regarding the consequence of non-payment to District Mineral Foundation ('DMF') in this regard applicant submitted that the payment to DMF is governed by Section 15 A of the Mines and Minerals (Development and Regulation) Act 1957 ('MMDR Act) and Section 25 of the MMDR Act provides that any sum due to the government will be recovered as arrears of land revenue. Also, Section 15(4) of the Act empowers the State Government to make rules for regulating the manner in which the DMF shall work. In exercise of the said powers, Karnataka Government has formulated the District Mineral....
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....and Geology) for quarrying "building stones' and paying royalty @ Rs. 60 per MT of building stones as per the Mines and Minerals (Development & Regulation) Act, 1957 ("MMDR Act") read with Karnataka Minor Mineral Concession Rules, 1994 ("KMMC Rules"). The Applicant is also paying 30% of royalty to District Mineral Foundation ("DMF") as per the MMDR Act read with Karnataka District Mineral Foundation Rules, 2016 ("KDMF Rules") and applicant had sought Advance Ruling as mentioned above. 16. The applicant has obtained Government land on lease for quarrying Building Stone and in turn applicant pays Royalty along with payment made to District Mineral Foundation of the district and National Mineral Exploration Trust as specified by the Government. The leasing of the Government land to the applicant is considered as supply of service as per sub section (1) of section 7 of the CGST/ KGST Act 2017 which is narrated as under: 7. (1) For the purposes of this Act, the expression "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 ....
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.... Mineral Concession Rules, 1994 ("KMMC Rules") and amount paid to District Mineral Foundation ("DMF") equal to 30% of royalty as per the MMDR Act read with Karnataka District Mineral Foundation Rules, 2016 ("KDMF Rules") to the Government are to be included in the value of the service provided to the applicant as these payment are made under the statutory requirements of the Mines and Minerals (Development and Regulation) Act, 1957 which is taxable under GST. 19. The applicability of GST rate for the aforementioned service is based on the classification of service. In the present case, the mining rights so granted is covered under the sub heading 997337 that specifies - 'Licensing services for the right to use minerals including its exploration and evaluation'. 19.1. Regarding the rate of tax applicable on the above supply Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 is verified and found that the entries related to SAC 9973 are as under: Sr.No. Heading Description of Service Rate (percent) Conditions 17 Heading 9973 (Leasing or rental services, with or without operator (i) . . . . . . . (ii) . . . . . . . (iii) T....
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....ervices, with or without operator, other than (i), (ii), (iii), (iv), (v) and (vi) above. Same rate of central tax as applicable on supply of like goods involving transfer of title in goods - 35 Heading 9997 Other services (washing, cleaning and dyeing services; beauty and physical well-being services; and other miscellaneous services including services nowhere else classified). 9 - 19.3. Notification no. 11/2017 - Central Tax (Rate) dated 28.06.2017, Serial No. 17 was further amended by Notification No. 1/2018 - Central Tax (Rate) dated 25-01-2018 and after the amendment the entries look as under: Sr.No. Heading Description of Service Rate (percent) Conditions 17 Heading 9973 (Leasing or rental services, with or without operator) (i) . . . . . . (ii) . . . . . . (iii) Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Same rate of central tax as on supply of like goods involving transfer of title in goods - (iv) . . . . . . (v) . . . . . . (vi) Leasing of motor vehicles purchased or leased pri....
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....vii) Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v) and (vi) above. 9 - 35 Heading 9997 Other services (washing, cleaning and dyeing services; beauty and physical well-being services; and other miscellaneous services including services nowhere else classified). 9 - 19.5 Coming to the issue whether the license to extract mineral ore and also the right to use such minerals extracted is a leasing or rental service, it is clear that what is supplied by the Government is the lease of the right to extract and use mineral ores and that is not covered by any specific entries in the serial no. 17 of the Notification and hence falls under the residual entry. Upto the amendment of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 by the Notification No. 27/2018 - Central Tax (Rate) dated 31.12.2018, the tax rate for the above service is fixed at the rate of tax which was applicable on supply of like goods involving transfer of title in goods. In the pertinent case, there was a transfer of title in goods involved in the activities of the applicant and that was of the extracted building stone on which the royalty was paid and he....
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.... taxable territory Since the transaction is between the State Government and the applicant and the services are supplied by the state government to the applicant which is a business entity, and the transaction being a supply not covered under the exceptions, the applicant being the recipient of such service shall have to pay tax on the said supply under reverse charge mechanism as per Notification No. 13/2017 - Central Tax (Rate) dated 28.06.2017. 21. Regarding the issue of DMF Contribution, the following are observed: 21.1 Section 9B of the Mines and Minerals (Development and Regulation) Act, 1957 as amended from time to time reads as under: "9B. District Mineral Foundation - (1) In any district affected by mining related operations, the State Government shall, by notification, establish a trust, as a non-profit body, to be called the District Mineral Foundation. (2) The object of the District Mineral Foundation shall be to work for the interest and benefit of persons, and areas affected by mining related operations in such manner as may be prescribed by the State Government. (3) The composition and functions of the District Mineral Foundation shall be such as may be pr....
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....ods or supply of services; (d) interest or late fee or penalty for delayed payment of any consideration for any supply; and (e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. Explanation.-For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. Rule 27: Value of supply of goods or services where the consideration is not wholly in money: (a) be the open market value of such supply (b) If the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply. 21.4 On plain reading of section 15 of the CGST / SGST Act along with the rule 27, it says that any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient is includible. Further, in section 15(2) of the CGST Act, it is clearly seen that any amount of any taxes, duties, cesses, fees and charges levied under any law for the time being in force ot....