In re Deccan Cements Limited (GST AAR Rajasthan)
In a recent advance ruling sought by Deccan Cements Limited, the GST Authority for Advance Ruling (AAR) Rajasthan provided clarity on the applicability of GST to payments related to a mining lease. Deccan Cements, a company involved in the manufacturing and trading of cement, was selected as the preferred bidder in an e-auction conducted by the Government of Rajasthan for the allotment of a limestone block in Jaisalmer, Rajasthan. The key issue raised by the company was the liability of GST on royalty payments for the mining lease under the Reverse Charge Mechanism (RCM).
The ruling dealt with multiple questions concerning GST applicability, including whether GST was payable on royalty payments, the applicable rate of GST, and whether upfront payments made before the signing of the lease agreement would attract GST. The AAR examined relevant provisions under the Central Goods and Services Tax (CGST) Act, 2017, and related notifications, such as Notification No. 13/2017-Central Rate, to provide its findings.
The AAR concluded that GST is applicable to the royalty payments made to the Rajasthan government under the reverse charge mechanism (RCM) at a rate of 18% (9% CGST and 9% SGST). Additionally, it was clarified that upfront payments made by Deccan Cements prior to the issuance of the Letter of Intent (LOI) and before the formal signing of the mining lease agreement are also subject to GST under RCM. Moreover, Deccan Cements was required to obtain GST registration in Rajasthan since the services related to the mining lease are provided in that state.
