TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 1663
X X X X Extracts X X X X
X X X X Extracts X X X X
....eral producer of the Government of India. It is owned by the Government of India and is under administrative control of the Ministry of Steel. It is India's largest iron ore producer and exporter producing millions of tons of iron ore from fully mechanized mines in Chhattisgarh. Pursuant to an agreement, NMDC Bacheli is required to pay royalty as per Mines and Minerals (Development & Regulation) Act, 1957. As per Section 9 of the said Act, NMDC is required to pay royalty @15%. 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. II. M/s NMDC has applied for advance ruling on the following two issues: 1. Whether royalty paid in respect of mining lease can be classified under "Licensing for the right to use minerals including its exploration and evaluation falling under the heading 9973 attracting GST at the same rate of tax as applicable on supply of like goods involving transfer of title in goods"? The query has been ruled in affirmative, as per the appellant's view, by the Authority for Advance Ruling....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vities that shall be treated as a supply of services. They also relied upon clause 5(e) of Schedule II of the CGST Act, 2017 which provides that agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to an act shall be treated as a supply of services. 3.3 That, the term "service" is defined as follows under section 2(102) of the CGST Act, 2017:- "services means anything other than goods, money and securities but includes activities relating to the use of money or conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged." For an activity to qualify as a 'service', the same has to be performed at the behest of the service recipient An act done without corresponding desire or without reciprocate contractual obligation of the service recipient cannot be considered as an activity for a consideration. 3.4 That, for a supply to be taxable under GST law, the same has to be for a 'consideration'. Relying upon the definition of the term 'consideration' u/s 2(31) of the CGST Act, 2017, the appellant contended that co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny particular activity by a partner, it cannot be assumed that there was a consideration agreed upon for any specific activity so as to constitute a service." 3.7 That, the said trusts qualify neither as 'government' nor as 'local authority. As per Section 2(53) of CGST Act, 2017, government means "Central Government" and as per Section 2(53) of Chhattisgarh GST Act, Government means "State Government". Further, the said trust does not fall within the definition of local authority which is defined under section 2(69) of the CGST Act, 2017. An autonomous trust set up 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 of Section 2(16) of 1GST Act. Based on above, the appellant's contention was 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. It was further stated by the Appellant that both the trusts does not fall under the definition of Government. The same is an independent non-pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....would have been retained by the State Government The said sum is for the benefit of the interest of persons and the areas affected by mining related operations and exploration activities, thus cannot be considered as consideration towards the mining right. 4.3 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 criteria for levy of tax under Section 7 is not satisfied. 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 Appellant, the said service is not under notified services, under Reverse charge. 5. Legal position, Analysis and Discussion:- 5.1 The provisions for implementing the CGST Act and CGGST Act, 2017 are similar. Now we chronologically discuss the provisions that are applicable in the instant case. 5.2 CONTRIBUTIONS TO DMF AND NMET ARE IN THE FURTHERANCE OF BUSINESS: M/s NMDC Limited is a state-controlled mineral producer of the Government of India. It is owned by the Government of India and is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pays royalty for its business of iron ore extraction and also pays to both the trusts i.e. DMF and NMET in the course of furtherance of this business only. By no stretch of imagination, this can be treated as donation. In case of failure to contribute to the above trusts, the business/rights of iron ore extraction would legally get hampered. Whereas, donations are always voluntary here in the instant case there is compulsory payment to both the trusts in proportion to the amount of royalty. Thus there hardly remains any doubt that the said contributions paid by M/s NMDC to both the trusts are amounts being paid in the course of furtherance of its business activities. 5.3 CONTRIBUTIONS MADE TO DMF AND NMET ARE THE MONETARY VALUE OF AN ACT OF FORBEARANCE -AS AN UNDERTAKING-FOREBEARING TO CAUSE ANY FURTHER DAMAGE TO THE ENVIRONMENT WHICH IS THE DUE CONSIDERATION HERE. Rule 2 of Chhattisgarh District Mineral Foundation Trust Rules, 2015 stipulates the following definitions with regard to the contribution made to DMF and NMET in addition to royalty. Rule 2(1)(d) defines who "Collector" is and shall have the same meaning assigned to him/her under the Chhattisgarh Land Revenue Code, 19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ner of an undertaking to forbear from causing environmental damage and protection to the ecosystem. DMF and NMET provide almost 60% of the fund for the following:- a) The works which are undertaken by the Trusts include centralized water purification systems, water treatment plants, permanent/ temporary water distribution network, etc. The trust is required to perform this work to mitigate the adverse effects which are created by the holder of mining lease. Because of the mining and exploration activities the drinking water gets very much affected in these areas and the aforementioned trusts inturn work for the benefit of people and thereby investing a huge amount of money for Dividing clean drinking water facility to the people affected by such act. b) The second most important work provided by the Trusts is to work for the improvement of Environment preservation and also to control the pollution. These trusts provide for effluent treatment plants, prevention of pollution of streams, lakes, ponds, ground water, other water sources in the region, measure for controlling air and dust pollution caused by mining operations and dumps, mine drainage system, mine pollution preventio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng has decided in the case of M/s. Poineer partners, Bhiwani, having advance ruling no. HAR/HAAR/R/2018-19/03 that "the term 'services' has been defined under section 2(102) "services means anything other than goods, money and securities but includes activities relating to the use of money or conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged." It was, inter alia, ruled that" the recipient of services i.e. the appellant is liable to discharge the tax liability on such services provided it to by the Government on reverse charge basis." The clause 5(e) of the Schedule II of the CGST Act, 2017 read with section 7(1A), the relevant portion of which has been extracted as under:- SCHEDULE II [ Section 7] 5. Supply of services The following should be treated as supply of services, namely:- [a] ........................................... .......................................... (e) agreeing to the obligation of to refrain from an act, or to tolerate an act or a situation, or to do an act: and." In the instant case, the miner (here NMDC) agrees to pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent of municipal or local fund. Trusts are other authorities: In Rajasthan State Electricity Board vs Mohan Lal & Ors (1967 AIR 1857) the definition of the term other authorities has been defined. It was held by the Bench that- This dictionary meaning of the word "authority" is clearly wide enough to include all bodies created by a statute on which powers are conferred to carry out governmental or quasi-governmental functions. The expression "other authorities" is wide enough to include within it every authority created by a statute and functioning within the territory of India, or under the control of the Government of India. DMF (District Mineral Foundation Trust) can be treated as an authority legally entitled to or entrusted by the Central or State Government with control and management of municipal or local fund because of the reasons stated below:- * In exercise of powers conferred under Section 9(B), 15(4) and 15A of the Mines and Minerals (Development and Regulation) Act, 1957 (No. 67 of 1957), the State Government of Chhattisgarh has created DMF (District Mineral Foundation Trust). Thus, it can be stated that it is a statutory body created under statute. * DMF is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s pertaining to position in space or belonging to a place, confined to a place. * The ordinary meaning of the word 'fund' may mean actual cash resources of a particular kind. It connotes actual payment, by taking money out of the drawer or drawing a cheque on the bank. A sum of money on which some enterprise is founded or expense supported, a supply or source of money, a store laid-up, money available to an organisation for a project etc. 'Local fund' would therefore mean the actual cash resources or the payments by way of taking the money out of the drawer pertaining to a specified position or belonging to a place which is inhabited by public and localised to the area. Tax has been interpreted to mean compulsory acquisition of property by the State for the purposes of providing protection, security and other amenities for the vital interests of the Society. 'Local fund' as referred to in Section 3(31) of the General Clauses Act would amount to a tax, fee and cess but would not cover the charges paid for the service rendered. The abovementioned definition is very wide, but for a better understanding and to make things more specific in relation to the St....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ected by mining or mining related operations in such manner as specified in these Rules. According to Rule 19, Contribution Fund which comprises of the funds collected through contribution from the holders of a mining lease or a composite licence in the case of Minor Minerals in the District shall be maintained by Managing Committee of the Trust. The head of the Managing Committee is Collector. Therefore, from the above it can be inferred that DMF is under the control of Government. Example can be given of Rule 22 of the DMF Trust Rules, 2015 which specifically indicates that overall development of the area affected by the mining operations would be done by the Governing Council of the Trust, like Drinking water supply, Environment preservation and pollution control measures, Health care, Education, Physical infrastructure, Irrigation, Energy and Watershed Development, etc. * NMET According to Rule 6 of the National Mineral Exploration Trust Rules, 2015 Executive Committee of the Trust is given power to manage the National Mineral Exploration Trust Fund. According to Rule 3 of the said rules, the Executive Committee is empowered to manage, administer and supervise the Tru....