In re M/s Penguin Trading and Agencies Limited (GST AAAR Odisha)
The Applicant has referred to Advance Ruling in the case of M/s Pioneer Partners, 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 Notification No 11/2017-CT (Rate) dtd. 28.06.2017 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. The Applicant has also referred to Advance Ruling in the case of M/s NMDC limited, wherein the Chhattisgarh Authority for Advance Ruling held that “The royalty paid by M/s NMDC in respect of mining lease is classifiable under sub heading 997337; ‘Licensing services for the right to use minerals including its exploration and evaluation covered under entry no 17 of Notification No 11/2017-CT (Rate) dtd. 28.06.2017 attracting GST at the rate as applicable for the supply of like goods involving transfer of title in goods, under reverse charge basis.
We are not inclined to follow the aforesaid rulings of AAR, since they have passed their rulings without properly appreciating the consequences of amendments made vide notification no. 27/2018-Central Tax (Rate) dated 31.12.2018. The said rulings were passed without taking into cognizance, proposal and decision of GST council, consequent upon which the said notification was issued. Therefore, we are of the firm view that the interpretation which defeats the intention of the legislature should be avoided.
In view of our aforementioned findings, we hereby order that licensing services for the right to use minerals including its exploration and evaluation received by the Applicant is taxable @ 18 % [9 % CGST and 9 % OGST] during 07/2017 to 12/2018. Thus, the reference from the Odisha Authority for Advance Ruling stands disposed of accordingly.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, ODISHA
M/s Penguin Trading and Agencies Limited Room No 201 & 204, Maa Parvati Enclave, 2nd Floor, Station Road, Barbil, Odisha, Pin – 758035 (Here-in after referred as ‘The Applicant’) filed an application before AAR Odisha on 24.05.2019 under Section 97 of the Odisha Goods and Service Tax Act 2017/CGST Act, 2017 seeking an advance ruling on rate of GST payable by them under Reverse Charge Mechanism on royalty paid to Government for mining of Iron Ore for the period July, 2017 to December 2018
2.0. The Applicant is a Limited company having GSTIN 21AABCP9346E1ZN registered in Barbil Odisha and falls within the jurisdiction of State of Odisha. The Applicant is staled to have been granted mining lease for extracting of iron ore in Odisha by the State Government and accordingly is engaged in the business of mining and supply of iron ore As consideration for the mining lease with the license to extract iron ore from the lease area, the Applicant pays royalty to the State Government before removal of the minerals from the lease area.
2.1 In terms of Notification No.13/2017-Central Tax (Rate) dated 28.06.2017 “the Business Entity located in the taxable territory shall be liable to pay GST under Reverse Charge Mechanism on the service supplied by the Central Government, State Government, Union Territory or Local Authority to a Business Entity . The Applicant is, thus, liable to pay GST on the royalty amount paid to the State Government under reverse charge mechanism. The Applicant has admitted the reverse charge liability and there is no dispute on this account. The Applicant has sought a ruling only on the rate at which GST is to be paid on reverse charge on the royalty paid to State Government during the period from 01.07.2017 to 31.12.2018.
2.2. The Advance Ruling Authority had examined the application and heard the Applicant. After hearing, the members did not agree on the issue of advance ruling on the rate of GST applicable to past supplies transacted during the period from 01 07.2017 to 31.12.2018
3.0. Views of the members of AAR
3.1. Member of AAR, the Joint Commissioner of Central Tax was of the view that the Appellant had filed application for advance ruling on 24.05.2019 on the issue of determination of Rate of GST, payable under Reverse Charge Mechanism, on royalty paid to Government for mining of Iron Ore for the period from July, 2017 to December, 2018 where as sub-section (2) of Section 97 prescribes that the question on which the advance ruling can be sought under this Act, which shall be in respect of – (1) Classification of any goods or services or both; (2) Applicability of a notification issued under the provisions of this Act and (3) Determination of time and value of supply of goods or services or both etc. In view of the above statutory provisions, it is obvious that Ruling should be issued in relation to any activity being undertaken or proposed to be undertaken in the future but not already undertaken in the past. Hence, he was of the view that the present case of the Applicant does not come within the ambit of provisions of Section 97 of the CGST Act, 2017.
3.2. The 2nd member of AAR i.e. the Additional Commissioner of State Tax has a different opinion in this regard As observed by him. Section 97 (2) (b) of the Act, which provides for a ruling on the applicability of a Notification issued under the provisions of the Act also implicitly provides for issue of an Advance Ruling on the applicable rate of GST, since GST rates are prescribed by issue of Notification only. On the other hand, clause (a) of section 95 of the Act defines Advance Ruling as a decision to be provided by the authority or the Appellate Authority in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the Applicant. The said definition does not restrict the scope of issuing ruling in respect of future transactions only Accordingly, It was also observed by him that would not be proper not to issue the ruling on the applicable rate of GST on the mining lease service availed by the Applicant. He also proceeded to draft the order for the ruling that the service under consideration is covered under the service classification code 997337 but the rate prescribed at SI No 17 (viii) of Entry Serial No 17 of Notification No. 11/2017-CT (Rate) dated 28.06.2017 and matching Notification issued by the Government of Odisha prescribing the rate of GST applicable to supply of the like goods involving transfer of title will not apply to the mining lease service provided by the Government to the Applicant notwithstanding that the said service is classified under the Heading 9973 It was also observed by him that the rate of GST prescribed in column 4 against the residual services in clause (viii) of Entry Serial 17 of Notification No. 11/2017 -CT (Rate) cannot simply be implemented for determining the rate of GST applicable to the mining lease provided by Government to all the mining lessees including the Applicant for the simple reason that the supply does not involve lease of any goods but rather conferment of the right to exploit and appropriate the minerals from the lease hold area during the currency of the lease agreement The supply being of the nature of conferring the right on the lessee to mine and appropriate the minerals, the rate prescribed for leasing of goods cannot be applied in this case Hence, the most appropriate rate shall be the default rate of 9% CGST & 9% OGST.
4.0 On reference by the Authority tor Advance Ruling with differing observation by members the Applicant was granted an opportunity of personal hearing on 23.10.2019 Shri Vikram Khaitan. Chartered Accountant appeared on behalf of the Applicant In the course of personal hearing Mr Khaitan reiterated the submissions made m the application and also pleaded for issue of a ruling on the rate of GST applicable on the royalty paid to Government as consideration for the mining lease granted in favour of the Applicant At the time of hearing he filed copies of the following Advance Rulings issued by different Authorises of different States on the same question, i e ruling on the rate of GST applicable on mining lease service for consideration and precedence
