In re Raj Quarry Works (GST AAR Gujarat)
The Applicant has entered into Quarrying lease/license agreement for ‘BLACKTRAP’ material with the Government of Gujarat. Following are the Questions Raised by Applicant and Replied by AAR-
(i) What is the classification of service provided in accordance with Notification 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?
Ans. 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) 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?
Ans. The activity undertaken by the applicant attracts 18% GST (9% CGST+ 9% SGST).
(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?
Ans. The applicant is not covered under exclusion clause 1 of Sr. No. 5 of the Notification. Therefore, applicant is liable to discharge tax liability under reverse charge mechanism vide Notification No. 13/2017-C.T. (Rate), dated 28-6-2017 (as amended from time to time) of the CGST Act, 2017.
AAAR Ruling: GST payable on Royalty to State Govt for Black Trap’ mined
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, GUJARAT
1. M/s. Raj Quarry Works, Tulsi Gam, Taluka Savali, Vadodara having a GSTIN : 24AADFR5577NIZN, is a partnership company filed an application for Advance Ruling under Section 97 of CGST Act, 2017 and Section 97 of the GGST Act, 2017 in FORM GST ARA-01 discharging the fee of Rs. 5,000/- each under the CGST Act and the SGST Act.
2. M/s. Raj Quarry Works, is carrying out mining activity on a plot of land leased from the government of Gujarat. 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.
3. 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.
4. The Applicant seeks Advance Ruling on the following questions :
The applicant vide their letter dated 18.01.2019 has submitted re-drafted question on which seeks Advance Ruling and said questions are as under :-
(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?
Grounds for application/interpretation of law:
5. The applicant submitted that he is carrying out mining activity on a plot of land leased from the government of Gujarat, paying dead rent / royalty for the same. The applicant understands that this payment of dead rent / royalty to the Government of Gujarat is for the purpose of service of granting “Right to Use” minerals.
6. Further, applicant submitted that in exercise of power conferred under section 9(1) of the CGST Act, 2017, Notification No. 11/2017-CT (Rate) dated 28/06/2017 has been issued which notifies the Central tax, on intra state supplies of service description along with Tariff heading in accordance with the scheme of classification is specified which are subject to specific conditions. Along with said Notification No. 11/2017-CT(Rate), dated 28/06/2017 an annexure has also been appended with it, in which serial no. 257 specify that the Group 9733 includes sub heading 997337 which is for- “Licensing services for the right to use minerals including its exploration and evaluation.”
7. The applicant submitted that in the instant case since the Lease Agreement is for mining, the classification of such services in accordance with Not. No. 11/2017-CT (Rate) dated 28.06.2017, is covered at Sr. No. 17 of the notification.
8. The applicant further submitted that services of right to use natural resources gets classified under tariff 9973 and since description of services under serial no. 17(i) to (v) does not cover such services of right to use minerals therefore, it would fall under the residuary entry at serial no. 17(viii). Being so, rate of tax applicable on such services, as provided therein, shall be the same rate of tax as applicable on supply of goods involving transfer of title in goods.
9. The applicant submitted that in view of the above, service charge by way of annual dead rent or royalty paid for services of granting of use minerals would attract GST rate as applicable on supply of minerals which is being extracted through such mining and same is to be paid by them as per RCM provision.
10. The applicant further submitted that therefore they understood that tax on Right to use service provided by the State government for exploration & mining of the minerals “BLACKTRAP”-material used for concrete mixing, that are classified under Tariff heading 2517 and GST leviable @ 5% (2.5%+2.5%).
11. The applicant has relied upon the decision of Haryana Authority on Advance Ruling reported in 2018 (18) GSTL 58 (AAR GST) in the case of M/s. Pioneer Partners wherein it was held that royalty paid towards mining rights of “stone boulders” taxable at 5% under reverse charge.
12. The applicant further submitted that Govt. Of India has issued a new Notification No. 27/2018-CT(Rate) dated 31.12.2018 interalia amending the earlier Notification No. 11/2017 dated 28.06.2017.
Findings and Discussion
12. We have considered the submissions made by the Applicant in their application for advance ruling as well as the additional submissions made by authorised signatory, during the personal hearing proceedings on 10-01-2019 before this authority and we have also considered the additional submissions made on 31.05.2019. We also considered the issue involved, on which advance ruling is sought by the applicant, relevant facts & the applicant’s interpretation of law. At the outset, we would like to state that the provisions of both the CGST Act and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the SGST Act.
13. 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.
14. 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. The applicant had sought Advance Ruling as mentioned above.
15. The applicant has obtained Government land on lease for quarrying BLACK TRAP Material and in turn applicant pays Royalty to the Government of Gujarat. The leasing of the Government land to the applicant is considered as supply of service as per sub-section (1) of Section 7 of the CGST Act, 2017, which is narrated as under:-
7. (1) For the purposes of this Act, the expression “supply” includes :
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business; and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration.
(1A) where certain activities or transactions, constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.
Further, the activities mentioned in the Entry No. 2 of the Schedule II relate to the activities to be treated as supply of goods or supply of services with regard to the Land and Building which is given as under:-
(a) Any lease, tenancy, easement, license to occupy land is supply of service
Therefore, from the above leasing of the Government land to the applicant to carry out the activity of the quarrying is a supply of service to the applicant.
16. Regarding the classification of service received by the applicant Annexure to the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 have been referred. The said Annexure prescribes the Service Accounting Code for each type of services, details of the following services which are relevant to the transaction of the applicant is as under:
Heading 9973 Leasing or rental services with or without operator
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