Gujarat Authority of Advance Ruling has vide its order dated 19.05.2020 in the application filed by M/s Raj Quarry Works (ADVANCE RULING NO. GUJ/GAAR/R/2020/09) has adjudged that payment of rent/royalty for license given by State Government to extract minerals would be supply of service attracting 18% GST and tax thereon will be paid under reverse charge mechanism.
The above ruling is in deviation of above ruling by Haryana AAR, in M/s. Pioneer Partners reported in 2018 (18) GSTL 58 (AAR-GST), wherein it was held that “the services for the right to use minerals including its exploration and evaluation attracts the same rate of tax as on supply of the like goods involving transfer of title in goods.
Facts of the Case
The applicant is engaged in the business of mining activity on a plot of land leased from the government of Gujarat and exploring, drilling, processing etc., of products derived from such mines and stone quarry lands. The applicant is quarrying “BLACK TRAP” products used for concrete mixing and sells it to the customers. BLACKTRAP material attracts GST at 5% under Heading 2517 in Schedule-I.
The Applicant has entered into Quarrying lease/license agreement for “BLACKTRAP” material with the Government of Gujarat. The lease was granted vide Collector, Panchmahal’s Order No. AGG/QL/16750/1583 to 1587 dated 11.03.2010. The said order is pursuant to Lease Agreement signed between the applicant and Govt. Of Gujarat. The said lease is operative for 10 years from 19.06.2010 to 18.06.2020. The applicant lease holder as per the terms and condition is required to pay Rent of Rs. 2,62,147/- per year or Royalty @ Rs. 250/- per Metric Ton, whichever is higher to the Govt. Of Gujarat.
Questions on which advance ruling was sought
(i) What is the classification of service provided in accordance with Notification No. 11/2017-CT (Rate) dated 28.06.2017 read with annexure attached to it, issued by the State Government to M/s Raj Quarry Works, for which royalty is being paid. Whether said service can be classified under Tariff Heading 9973, specifically under 997337 as Licensing services for the right to use minerals including its exploration and evaluation or as any other service?
(ii) What is rate of GST on given services provided by State of Gujarat to M/s Raj Quarry Works for which Royalty is being paid?
(iii) Whether services provided by the State Government is governed by applicability of Notification No 13/2017-CT(Rate), dated 28.06.2017 under entry number 5 and whether M/s Raj Quarry Works is taxable person in this case to discharge GST under reverse charge mechanism or whether given service is covered by exclusion clause number (1) of entry no 5 and State Government is liable to discharge GST on same?
Ruling of Gujarat AAR
i) Payment of rent/royalty is for license given to extract minerals and the amount of rent/royalty paid is based on the quantum of mineral extracted.It is a license to extract mineral ore and also the right to use such minerals extracted. Accordingly the activity undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services, with or without operator), as mentioned in the annexure at Serial No. 257 (Licensing services for the right to use minerals including its exploration and evaluation) sub-heading 997337 of Notification Number 11/2017-C.T. (Rate), dated 28-6-2017
ii) ‘Licensing services for the right to use minerals including its exploration and evaluation’ which is classifiable under SAC 9973 37 will be covered under residual entry No. (viii) of the Notification No.
11/2017-(Rate) Central Tax dated 28.06.2017 and would attract GST rate 18% {9% CGST+9% SGST } from the period of July, 2017 onwards.
The applicant had argued that rate of tax @ 5% should apply relying on the case of M/s. Pioneer Partners reported in 2018 (18) GSTL 58 (AAR-GST), wherein the Haryana Authority for Advance Ruling held that “The services for the right to use minerals including its exploration and evaluation, as per Sr. No. 257 of the annexure appended to Notfn. No. 11/2017-C.T. (Rate), dated 28-6-2017 is included in Group 99733 under Heading 9973. Hence it attracts the same rate of tax as on supply of the like goods involving transfer of title in goods.
Gujrat AAR made a hard hitting statement in its order that the Haryana AAR have passed above rulings without properly appreciating the consequences of amendments made vide Notification No. 27/2018-Central Tax (Rate), dated 31-12-2018. Further, as per Section 103 of the CGST Act, any Advance Ruling is binding on the Applicant who has sought it and on the concerned officer or the jurisdictional officer in respect of the Applicant. Accordingly, AARs Ruling as cited above can’t be relied upon in the present case of the Appellant.
iii) The applicant has taken a mine on lease for quarrying minerals from the Govt. Of Gujarat and said service is not service of Renting of immovable property therefore applicant does not fall under exclusion entry No. 1 of the said Notification. The transaction/service i.e. “leasing of mines” is between the State Government and applicant and the services are supplied by the State Government to the applicant which is a business entity. The subject transaction/service being a supply is 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 28-6-2017. Hence the applicant is liable to pay GST under reverse charge mechanism.
For ready reference of our readers the order of Gujarat AAR is given below:
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