In re Giriraj Quarry Works (GST AAR Gujarat)
(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, , for which royalty is being paid.
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 Giriraj Quarry Works for which Royalty is being paid?
Ans. The activity undertaken by the applicant attracts 18% GST (9% CGST+9% SGST).
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, GUJARAT
1. M/s. Giriraj Quarry Works, Taluka Savali, Vadodara having a GSTIN : 24AAFFG8784L1ZT, is a partnership company under the provision of Partnership Act 1932 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. Giriraj Quarry Works, is engaged in the business of quarry of “Black Trap” in the State of Gujarat. The said product is classified under Tariff Heading 2517 and are leviable to GST on their supply @ 5% in Schedule-I.
3. The applicant submitted that they have been granted mining lease for extracting “Stone along with associated minor minerals” at village Udaipur District Desar, Gujarat by the State of government on various terms and conditions as the agreement.
4. The applicant further submitted that in accordance of Part V para 3 of the agreement it has been agreed that the bid amount of Rs. 1,50,000/- shall become “Annual Deed Rent” as amount agreed to be paid by the lessee and the rate of same shall increase depending upon the terms of auction. Further, as per the provision of para 3 of the Part V of the agreement the lessee shall be liable to pay the deed rent or royalty whichever is higher in respect of the quarry as calculated as per the para 4 of the PART V of the agreement but not both. In compliance of the said lease agreement the applicant has paid annual deed rent or royalty as the case may be. Further, in accordance to the said lease deed the applicant is required to submit a monthly return in a specified format i.e. Form J, Form F1 and F2 online wherein it has been asked to submit the quantity of minerals produced and dispatched from the leased mines and other information.
5. The applicant further submitted that in terms of the said lease the applicant is required to pay in addition to the annual deed rent, amount to the extent of 10% as District Mineral Fund and 1% as TCS in accordance with the provision of the Income Tax Act 1961.
6. The Applicant seeks Advance Ruling on the following questions :
(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, for which royalty is being paid.
(ii) What is rate of GST on given services provided by State of Gujarat to M/s Giriraj Quarry Works for which Royalty is being paid?
Grounds for application/interpretation of law :
7. The applicant submitted that they are engaged in the business of quarry of “black trap” in the State of Gujarat. The said product is classified under Tariff Heading 2517 and are leviable to GST on their supply @ 5% in Schedule-I.
8. The applicant submitted that the service provided by State of Gujarat to Giriraj Quarry Works for which GST is being paid can be classified under tariff 9973 specifically under 997337 as “Licensing services for the right to use minerals including its exploration and evaluation” and GST rate attract the same rate of tax as on supply of the like goods as per the Not. No. 11/2017-CT (Rate) dated 28.06.2017.
9. Further, applicant submitted that the classification of service of right to use natural resources in accordance with Notification No. 11/2017-CT (Rate) dated 28/06/2017 classify 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(vi). Being so, rate of tax applicable on such services, as provided therein, shall be the same rate of tax as applicable on supply of like goods involving transfer of title in goods.
10. The applicant further submitted that on the same fact of the case Hon’ble Haryana Authority for Advance Ruling , ruled that the above mentioned Service would fall under residual entry at Sr. No. 17(vi). Being so, rate of tax applicable on such services, as provided therein, shall be the same rate of tax as applicable on supply of like goods involving transfer of title in goods.
Personal Hearing
11. Personal hearing in the matter was held on 11-06-2020. Shri Gautam Patel C.A , Chartered Accountant appeared on behalf of the applicant and re-iterated the submission made in the Application.
Findings and Discussion
12. We have considered the submissions made by the Applicant in their application for advance ruling. 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”. 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 on various terms and conditions. As per the terms and condition of the lease applicant is required to pay bid amount of Rs. 1,50,000/- and this bid amount shall become Annual Deed Rent for the lease. The rate of same shall increase depending upon the terms of auction. Further, as per the agreement, the applicant shall be liable to pay the dead rent or royalty, whichever is higher in respect of the quarry.
15. The applicant has obtained Government land on lease for quarrying BLACK TRAP Material and in turn applicant is required to pay Annual Rent deed or Royalty, whichever is higher, to the Government of Gujarat. The leasing of the Government land to the applicant is considered as supply of service, as per subsection (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 are 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 Annexure attached to the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 has defined 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
