In re Wolkem Industries Ltd (GST AAR Rajasthan)
1. 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, by the State of Rajasthan to M/s Wolkem Industries Limited for which royalty is being paid? Whether said service can be classified under 9973 specifically under 997337 as Licensing services for the right to use minerals including its exploration and evaluation or as any other service?
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-CT (Rate) dated 28.06.2017. The applicant is liable to discharge tax liability under reverse charge mechanism vide Notification No 13/2017-CT (Rate), dated 28.06.2017 (as amended from time to time) of the CGST Act, 2017.
2. What is the rate of GST on given services provided by the State of Rajasthan to M/s Wolkem Industries Limited for which royalty is being paid?
The activity undertaken by the applicant attracts 18% GST (9% CGST+ 9% SGST).
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, RAJASTHAN
Note: Under Section 100 of the CGST/ RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/ RGST Act, 2017, within a period of 30 days from the date of service of this order.
The issue raised by M/s Wolkem Industries Limited, E-101, Mewar Industrial Area, Madri, Udaipur, Rajasthan 313001, (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2)(a) and (e), given as under :
a. classification of goods and/or services or both;
b. determination of the liability to pay tax on any goods or services or both.
Further, the applicant being a registered person (GSTIN is 08AAACW5635N1ZU), as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling.
1. SUBMISSION AND INTERPRETATION OF THE APPLICANT:
a. The applicant is a Limited company registered under the Companies Act having their office at E 101, Mewar Industrial Area, Madri, Udaipur, Rajasthan, 313001. The Applicant is also registered under the provisions of Central Goods & Services Tax Act, 2018 read with the provisions of the Rajasthan Goods & services tax Act, 2017 having GSTIN 08AAACW5635N1ZU.
b. That the Applicant is engaged in the business of mining of Wollastonite, Calcite, Feldspar and Quartz at Sirohi in the State of Rajasthan. The said products are classifiable under Tariff Chapter 25 and are taxable at the rate of 5% under GST. That the applicant has been granted a mining lease for extracting Wollastonite, Calcite, Feldspar and Quartz at village Khertala, Pindwara Tehsil, District Sirohi, Rajasthan by the state Government on various terms and conditions as per the Lease Deed. The terms and conditions of the said Lease Deed are to be referred from the lease deed and are not reproduced here for sake of brevity.
c. That the Applicant is required to pay Dead rent / Royalty / Surface rent as per the rate notified by the State Government from time to time. That in light of the above, the applicant wishes to get better understand regarding taxability as to the nature of services being provided by the State Government of Rajasthan to it along with the rate of tax and who would be liable to discharge GST on the same and at what rate as the mines are of Wollastonite, Calcite, Feldspar and Quartz which are itself taxable at the rate of 5% under GST.
d. That the applicant has been granted a mining lease for extracting Wollastonite, Calcite, Feldspar and Quartz at village Khertala, Pindwara Tehsil, District Sirohi, Rajasthan by the state Government on various terms and conditions as per the Lease Deed.
e. That the Applicant is required to pay Dead rent / Royalty / Surface rent as per the rate notified by the State Government from time to time. That in light of the above, the applicant wishes to get better understand regarding taxability as to the nature of services being provided by the State Government of Rajasthan to it along with the rate of tax and who would be liable to discharge GST on the same and at what rate as the mines are of Wollastonite, Calcite, Feldspar and Quartz which are itself taxable at the rate of 5% under GST.
f. The applicant’s interpretation of law and/or facts, (i.e. applicant’s view point and submissions on issues on which the advance ruling is sought).
I. That the applicant is engaged in the business of mining of Wollastonite, Calcite, Feldspar and Quartz at Sirohi in the State of Rajasthan. The said products are classifiable under Tariff Chapter 25 and are taxable at the rate of 5% under GST. That the Applicant has been granted a mining lease for extracting Wollastonite, Calcite, Feldspar and Quartz at village Khertala, Pindwara Tehsil, District Sirohi, Rajasthan by the state Government on various terms and conditions as per the Lease Deed.
II. That Section 9 being the charging Section under the CGST Act, 2017 states as under: 9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.
III. By way of this Section, every transaction which qualifies as a Supply except Supply of alcoholic liquor for human consumption shall be taxable and the taxable person would be liable to pay GST. The said transaction falls under the definition of Supply and is therefore taxable under the provisions of GST. The same has also been confirmed by the Ministry in their GST Flyer pertaining to FAWs on Government Services, wherein it was asked Whether an amount in the form of royalty or any other form paid/payable to the Government for assigning the rights to use of natural resources is taxable?
IV. It was explained that the Government provides license to various companies including Public Sector Undertakings for exploration of natural resources like oil, hydrocarbons, iron ore, manganese, etc. For having assigned the rights to use the natural resources, the licensee companies are required to pay consideration in the form of annual license fee, lease charges, royalty, etc to the Government. The activity of assignment of rights to use natural resources is treated as supply of services and the licensee is required to pay tax on the amount of consideration paid in the form of royalty or any other form under reverse charge mechanism.
V. The question pertaining to whether reverse charge mechanism is applicable on it or not, the Ministry answered by clarifying that on royalty GST will apply under reverse charge mechanism. Further, such payment of GST under reverse charge mechanism would be eligible as ITC in the hands of the recipient of supply for payment of GST.
VI. Notification No. 11/2017-CT (Rate) dated 28.06.2017 as amended vide Notification No. 01/2018-Central Tax (Rate) has been issued in exercise of the power conferred under Section 9(1) of the CGST Act, 2017 stated above which notifies the Central tax on intra-state supply of service description along with Tariff Heading in accordance with the scheme of classification is specified which are subject to specific conditions.
VII. That Annexure appended to the said Notification specifies that at Serial No. 257 the group 99733 includes sub-heading 997337 which is for: “Licensing services for the right to use minerals including its exploration and evaluation”.
VIII. As per our understanding the Royalty or the Dead Rent paid by the applicant to the Government is nothing but an amount paid for getting right to use the minerals granted to it for a specified period as per terms of the lease.
IX. That in the given transaction the lease deed has been executed for leasing of mines, Hence, it is stated that the classification of services is in accordance with Notification No. 11/2017-CT (rate) dated 28.06.2017 and the said transaction is covered under Serial no. 17 of the said Notification. The said entry is reproduced for your kind perusal:
