TaxTMI 
TaxTMI 
2020 (9) TMI 1228
X X X X Extracts X X X X
X X X X Extracts X X X X
....poses of this Advance Ruling, a reference to such a similar provision under the CGST or MP GST Act would be mentioned as being under the GST Act. 4. Brief facts of the case :- 4.1 The applicant is allotted with various mining sites across the country on lease for excavating minerals. 4.2 As per Section 13 of the MMDR Act, the Central Government has enacted Mineral (Auction) Rules, 2015 (hereinafter referred to as Mineral Rules) to regularize the grant of prospecting licences and mining leases in respect of minerals. 4.3 The Directorate of Geology and Mining, Government of Madhya Pradesh had issued a Notice Inviting Tenders for grant of Mining Lease (ML) for Bunder Diamond Block in Chhatarpur District of Madhya Pradesh. The copy of the Tender Document submitted by the applicant with Application as Annexure -1. 4.4 Once the entire process is completed, the applicant would be granted mining lease in respect of the [hinder Diamond Block under the provisions of Mines and Minerals (Development & Regulation) Amendment Act, 2015 (hereinafter referred to as MMDRA Act) by the Madhya Pradesh State Government. 4.5 For granting the right to excavate diamond, the applicant is r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... payments are adjusted in full at the earliest against the amount payable as revenue share after commencement of production of mineral. The relevant extract of the same is reproduced hereunder: "12. Payments by the Successful Bidder 12.1. Upfront Payment The Upfront Payment paid by the Successful Bidder shall be adjusted in full at the earliest against the amount payable in accordance with the percentage of Value of Mineral Despatched quoted as the Final Price Offer on commencement of production wineral(s) as specified in MDPA." 4.11 After the upfront payment is made, the state government shall enter into an agreement with applicant for grant of mining lease. The relevant extract of tender document for issuing grant of lease is as under: 3. CONDITION FOR GRANT OF MINING LEASE 3.1. Grant of Mining Lease over the Lease Area shall be conditional upon prior payment of the third instalment of the Upfront Payment which is INR 220,19,87,520 (Rupees Two Hundred Twenty Crore Nineteen Lakh Eighty Seven Thousand Five Hundred Twenty) within a period of 30 days from the Agreement Date. 3.2. Upon such payment, the State Government shall grant a Mining Lease....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of "Letter of Intent" as prescribed in Mining (Auction) Rules, 2015. 4.16 On payment of "upfront payment" the Government of Madhya Pradesh vide letter dated 19.12.2019 (Annexure-4 of application) has issued the "Letter of Intent" in favour of the applicant. 4.17 Even though, the applicant is of the view that the aforesaid monetary payments are in the nature of compulsory extract of money and not for any "supply". The applicant as an abundant caution has decided to discharge GST liability on the upfront payments, at the time when the same are adjusted against the revenue share, under reverse charge mechanism as applicable in terms of SI No. 5 of Notification No. 13/2017-CT(rate) dated 28.06.2017. 4.18 According to the applicant, the amount paid as upfront payment is only in the nature of "deposit" and will not be treated as "consideration" towards grant of mining lease license unless the same is adjusted against amount payable as revenue share. Therefore, the time of supply shall be the adjustment of deposit as a consideration and not the payment of deposit in terms of Section 2(31) of the MP GST Act, 2017. 5. QUESTION RAISED BEFORE THE AUTHORITY - "Whether the upfr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to ensure that the applicant does not back out from the commitment, as per the Auction Rules, an amount is collected from the applicant on the name of "Upfront Payment" and thereafter on fulfilment of specified conditions the agreement for grant of lease would be entered. A.5 Further, the amount of so called "upfront payment" paid by applicant is shown as "current assets" in books of accounts of the applicant. The same is not booked as expenditure. The amount would have been proportionately transferred to expenditure for service as and when applicant would have been liable to pay Revenue Share to the State Government. A.6 The amount paid by applicant before entering into agreement is not an "advance" but only a "deposit". In support of this conclusion, the reliance is placed upon decision of the Supreme Court in the case of Shri Hanuman Cotton Mills and Ors. V. Tata Air Craft Limited AIR 1970 SC 1986 (case law at page 7-21 of the compilation). The aforesaid judgement down the following principles regarding earnest money: (1) It must be given at the moment at which the contract is concluded. (2) It represents a guarantee that the contract will be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... OF DEPOSIT. THE STATE GOVERNMENT DOES NOT HAVE COMPLETE DOMINION OVER THE AMOUNT RECEIVED FROM THE APPLICANT. HENCE, THE SAME CANNOT BE TREATED AS "ADVANCE." C.1 The state government does not have the complete dominion over the "upfront payment" received from the applicant. C.2 In case by any reason, the state government repudiate the contract for the reasons not on account of applicant's default, the state government is liable to refund the "upfront payment" to the applicant. Hence, the state government does not have complete dominion over the amount received from the applicant and hence the same cannot be treated as consideration for provision of service. The state government will have dominion to the extent the "upfront payment" is adjusted to "Revenue share" as a consideration for rendition of supply. C.3 Reliance is placed on the judgement of Supreme Court of the United State in case of Commissioner of Internal Revenue v. Indianapolis Power & Light Company reported at 493 U.S. 203 (1990). The ratio of the above decision was also followed by the Indian Supreme Court in case of Siddheshwari Sahakari Sakhar Kharkhana Ltd. v. CIT, 2004-TIOL-76-SC. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to determine the time of supply in terms of Section 13(3) of the MP GST Act, 2017 ?" 8.3 The Section 2(31) of the MP GST Act, 2017 and Section 13(3) of MP GST Act, 2017 mentioned in the question raised by the applicant is reproduced below:- Section 2(31) 'consideration' in relation to the supply of goods or services or both includes- (a) any payment made or to he made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or service's 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; (b) the monetary value of any act or forbearance, 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 hut shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oward goods or services to be supplied in future. On the other hand deposit money is received only as a security. It is generally not used by the supplier in the course of supply of goods or services. The upfront payment made by the applicant is adjusted toward the services to be supplied in future after commencement of excavating minerals which clearly shows that the said payment is and advances against the future payment, hence the section 2(31) of MP GST Act which speaks about the deposit is not applicable in the case of applicant. 8.6 We find that in this case the upfront payment is payable in three installments and after payment of third installment, the State Government shall grant the mining lease to the successful bidder. We have gone through the tender and other documents submitted by the applicant and found that there is no clause of refund of that amount after allotment of mines on lease, hence the payment made to the state government is no more deposit after allotment of mines but is advance which will be adjusted against the future payment of revenue share amount. In this case, the mining lease is granted after the payment of third installment. The upfront payment m....