TaxTMI 
TaxTMI 
2020 (8) TMI 908
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....dvance Ruling No. 09/2019 dated 18.07.2019 BRIEF FACTS OF THE CASE 1. NMDC limited is a state-controlled mineral producer of the Government of India. It is owned by the Government of India and is under administrative control of the Ministry of Steel. 2. It is iron ore producer and exporter producing about 30 million tons of iron ore from 3 fully mechanised mines in Chhattisgarh and Karnataka. 3 NMDC Ltd. also has Diamond Mining Project at Majhgawan, Panna (M.P.) (hereinafter referred to as "NMDC" or "the company" or "the Appellant") which is engaged in mining and sale of "rough diamonds" falling under chapter heading 7102 attracting GST rate of 0.25% . Operating mines of NMDC includes the following-- Bailadila Iron Ore Mine, Kirandul Complex, Disst. South Bastar, Dantweada (Chhattisgarh) Bailadila Iron Ore Mine, Bacheli Complex Distt. South Bastar, Dantewada (Chhattisgarh) Donimalai Iron Ore Mine, Donimalai, Distt. Bellary (Karnataka) Diamond Mining Project, Majhgawan, Panna (Madhya Pradesh) QUESTIONS RAISED BEFORE AUTHORITY FOR ADVANCE RULING (AAR) Questions as were raised before AAR are as under: - 1. Whether royalty pai....
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....ng services for the right to use minerals including its exploration and evaluation. AAR has ruled it to the satisfaction of Appellant. 2. The second question was about liability to pay tax on contributions made to District Mineral foundation (DMF) and National mineral Exploration trust (NMET) as per MMDR Act, 1957. This has been ruled by AAR that said contributions are nothing but additions to the royalty payable for the original supply itself and is therefore liable to be added to the value of the original supply and treated accordingly for the purpose of GST. 3. Appellant has come before us against the ruling of AAR for question number 2. 4. Appellant has taken several grounds without prejudice to each other. Their first ground is that contributions made by them to DMF and NMET are not against any taxable supply made by these bodies, hence, no GST should be applicable to these contributions. Appellant has argued by quoting definition of supply and citing paragraph 5 (e) of schedule II which defines "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act" as services that there must be a service provider ....
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.... (1) The holder of a mining lease granted before the commencement of this Act shall, notwithstanding anything contained in the instrument of lease or in any Iaw in force at such commencement, pay royalty in respect of any I [mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee] from the leased area after such commencement, at the rate for the time being specified in the Second Schedule in respect of that mineral. (2) The holder 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. (2A) The holder of a mining lease - - -. (3) The Central Government - - - ^1[9 A. Dead rent to be paid by the lessee.- (1) The holder of a mining lease, whether granted before or after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 1972, shall notwithstanding anything contained in the instrument of lease or in any other ....
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....ational Mineral Exploration Trust. (2) The object of the Trust shall be to use the funds accrued to the Trust for the purposes of regional and detailed exploration in such manner as may be prescribed by the Central Government. (3) The composition - - - . (4) The holder of a mining lease or a prospecting licence-cum-mining lease shall pay to the Trust, a sum equivalent to two per cent. of the royalty paid in terms of the Second Schedule, in such manner as may be prescribed by the Central Government.] 10. Thus, it is noted that a mining lease holder or prospecting license cum mining lease is required to pay royalty, dead rent (when it is more than royalty), money to DMF and NMET under the MMDR Act. These leases are granted to the person under the Act and he has to make payment of all the requisite amounts. lie has no choice to make payment of one or more but has to pay all the dues as per Act. The Act has bifurcated the heads for its own convenience, but the person is discharge all the liabilities. 11. AAR in its order has already held that as per sub-clause (i) of clause (17) of section 2 of CGST Act the activity is supply and as per paragraph 5 (e) ....
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....iness; (c) the activities specified in Schedule 1, made or agreed to made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to Schedule II. LLL 14. Section 7 of the CGST Act, 2017 defines the term "supply" to include all forms of supply of goods or services or both. Also, it expressly seeks to include all activities treated as supply of goods or supply of services as referred to Schedule II of the CGST Act, 2017. In this regard, Clause 5 of Schedule II provides for the list of activities that shall be treated as supply of services. Inter alia, Clause 5(e) 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 Page 5 of 14 Document 2 treated as a supply of services. The relevant portion of the Schedule II is extracted hereunder for your ready reference:- 5. Supply of services SCHEDULE II (Section 7) The following shall be treated as supply of services, namely: (a).......... (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and..... ....
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....for such supply unless the supplier applies such deposit as consideration for the said supply" a or 20. From the definition of the term 'consideration', it is apparent that consideration can be monetary or non- monetary and that same should be 'in respect of, 'in response to', 'or for the inducement of the supply' of goods or services or both, meaning thereby that it should be identified with a supply of service and have nexus with the said supply of service. 21. Basis the above, it is understandable the levy of GST is attracted only when there is i) an activity undertaken at the behest of the service recipient and ii) the same is in response to/ for consideration (as contemplated under section 2(31) of the CGST Act, 2017). In the Appellant's case, there is no activity undertaken by the DMF Trusts and NMET at the behest of the Appellant for a consideration. The Appellant is mandated under law to contribute to the trusts set up and law and there is no voluntary contribution made by the Appellant in return for an activity. In fact, there is no agreement entered into for a specific service by the Appellant and the trusts in question for a pre-....
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....d people" and "affected areas" are also defined under the DMF Rules under rule 12. Under rule 12, the term 'affected area' shall include: (1) Affected Areas: (2) (i) villages and Gram Panchayats within which the mines are situated and are operational. Such mining areas may extend to neighboring village, block or district of state. (ii) An area within such radius from a mine or cluster of mines as may be specified by the State Government, irrespective of whether this falls within the district concerned or adjacent district. (iii) villages in which families displaced by mines have been re settled/rehabilitated by the project authorities. (iv) Villages that significantly depend on the mining areas for meeting their economic needs and have usufruct and traditional rights over the project areas, for instance, for grazing, collection of minor forest produce etc. Indirectly affected areas- Those areas which are not directly affected but where local population is adversely affected on account of economic, social and environmental consequences due to mining related operations, even though the major negative impacts of mining could be by ....
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....deemed necessary by the Governing Body to achieve its objects including: (a) Funding special studies and projects designed to identify, explore, extract, beneficiate and refine deep seated or concealed mineral deposits; (b) Undertake studies for mineral development, sustainable mining adoption of advanced scientific and technological practices and mineral extraction metallurgy; (c) Taking up exploration of areas for regional and detailed exploration, giving priority particularly strategic and critical minerals; (d) Consulting Central Geological Programing Board to decide the priorities for exploration of the Trust; (e) facilitating exploration activities in such a manner that areas explored can be taken up for the grant of mineral concessions in accordance with the provisions of the Act and the Rules made thereunder, etc. 31. Basis the above, it is clear that the DMF Trusts work to mitigate adverse impact of mining, to work towards welfare and development of people inhabited near mining area and to ensure sustainable livelihood for the affected people. In order to carry out the said objective, minors like the Appellants contribute to DMF....
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.... contributions made by the Appellant to DMT and NMET Trusts cannot be treated as consideration paid for an activity by the Appellant. Mere flow of money between the Appellant and the Trusts cannot be subject to the levy of GST. 38. Under the service tax law, which had identical requirements, it was settled law that mere flow of money cannot be subject matter of service tax and consideration/money should have 'nexus' with an identified supply of service. Reliance is this regard is placed by the Appellant on the following cases:- In the case of Cricket Club of India v. Commissioner of Service Tax [(2015) (40) STR 973]. the Hon'ble CESTAT (Mumbai Bench), observed as under:- *11............Consideration is, undoubtedly, an essential ingredient of all economic transactions and it is certainly consideration that forms the basis for computation of service tax. However, existence of consideration cannot be presumed in every money flow. The factual matrix of the existence of a monetary flow combined with convergence of two entities for such flow cannot be moulded by tax authorities into a taxable event without identifying the specific activity that l....
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....e.. 41. Even assuming that GST is payable for any service received by the Appellant, the same is payable by the Trusts and not the Appellant under reverse charge mechanism. 42. As per Section 2(53) of CGST Act, 2017, government means "Central Government" and as per Section 2(53) of Madhya Pradesh 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 "local authority" means-- (a) a "Panchayat" as defined in clause (d) of article 243 of the Constitution; (b) a "Municipality" as defined in clause (e) of article 243P of the Constitution; (c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund; (d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006; (e) a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution; a Development Board constituted under article 371 of the Constitution,....