In re Cosme Costa and Sons (GST AAR Goa)
1. The royalty paid by M/s Cosme Costa & Sons in respect of mining lease is classifiable under sub heading 997337- ‘Licensing services for the right to use minerals including its exploration and evaluation’ and is subject to levy of GST @ 5% till 31.12.2018 and thereafter @ 18% under reverse charge basis;
2. The contributions made to the District Mineral Foundation (DMF), the National Mineral Exploration Trust (NMET) and the Goa Mineral Ore Permanent Fund Trust (GMOPFT) are classifiable under sub heading 997337- “Licensing services for the right to use minerals including its exploration and evaluation” and is subject to levy of GST @ 5% till 31.12.2018 and thereafter @ 18% under reverse charge basis.
FULL TEXT OF ORDER OF BEFORE THE AUTHORITY OF ADVANCE RULING, GOA
PROCEEDING
(Under Section 98 of the Goa Goods and Services Tax, Act 2017)
The present application has been filed under section 97 of the Goa Goods and Services Tax Act, 2017 and the Central Goods and Services Tax, Act 2017 by M/s Cosme Costa & Sons, Mapusa, Goa seeking an Advance Ruling in respect of the following question:
i. Classification of “Leasing service” against payment of Royalty and the rate of GST applicable on royalty for extraction of iron;
ii. Whether the payment made to National Mineral Exploration Trust (NMET) Fund, District Mineral Foundation (DMF) Fund and Goa Mineral Ore Permanent Fund Trust (GMOPFT) is subject to levy of GST and if held in affirmative, rate at which GST is payable in relation to extraction of iron.
BRIEF FACTS OF THE CASE:
2. At the outset, we would like to make it clear that the provisions of both the CGST Act and the Goa GST 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 provision under the Goa GST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act/GGST Act would be mentioned as being under the “GST Act”.
3. M/s Cosme Costa and Sons, a partnership firm having their registered office at Altinho – Mapusa, Faira Alita, Bardez, Goa -403507 (hereinafter referred to as ‘the applicant’) are registered under the provisions of the GST Act and hold GSTIN No. 30AABFC0743K1ZZ. The applicant are engaged in the business of extraction and sale of iron ore from GAVAL SONSHI MINE located at Pissurlem Village in North Goa, Sattari Taluka spread over to an extent of 61.7430 hectares of land bearing Sy. No: 41 covered under the Mining Lease TC No. 110/1953. The operations conducted in relation to the extraction include the activity of raising3 excavating, stacking of iron ore and delivering the extracted crude iron ore at Pit head. The following statutory payments are required to be made by the applicant in order to extraction and sale of iron ore:-
a) The applicant has to pay royalty as a statutory payment to the State Government of Goa at the rate of 15% of the average sale price of iron ore, as a consideration for right to extract iron ore, in accordance with the provisions of the Mines and Minerals (Development and Regulation) Act, 1957.
b) The applicant has to make a contribution to the National Mineral Exploration Trust (NMET) as a statutory payment in accordance with the provisions of the Mines and Minerals (Development and Regulation Act) at the rate of 2% of the royalty paid.
c) The applicant has to make a contribution to the District Mineral Foundation (DMF) as a statutory payment in accordance with the provisions of the Mines and Minerals (Development and Regulation Act) as a statutory payment at the rate of 30% of the royalty paid.
d) The applicant has to make a statutory payment of the Goa Mineral Ore Permanent Fund Trust (GMOPFT) at the rate of 10% of sale proceeds of the iron ore.
4. The applicant’s submission on Royalty and payments to be made to aforesaid trusts are as below:
SUBMISSIONS ON CLASSIFICATION OF ROYALTY –
4.1 The applicant submitted that services provided by the State Government by way licensing services for extraction of iron ore is a ‘Supply’ for which royalty payable is a consideration and the GST payable on the same is to be discharged by the applicant under Reverse Charge Mechanism in accordance with the provisions of Section 9(3) of the CGST Act, 2017 read with entiy no: 5 of Notification No: 13/2017 – Central Tax (Rate) dated 28th June, 2017 and similar notification issued by the State Government. The applicant is of the view that the most appropriate classification would be under Heading: 9973 – (Leasing or rental services with or without operator) with the sub-category 997337 – (Licensing services for the right to use minerals including its exploration and evaluation). Royalty is in the nature of periodical payments to be made by the lessee under his covenants in consideration of the various benefits granted by the lessor. Royalty is collected by the State Government from the business entities for right given to them to extract mineral and is collected based on quantum of mineral removed or consumed. The applicant is also of the view that the Royalty on extraction of iron ore is subject to GST @ 5% (2.5% CGST and 2.5% SGST) till 30.12.2018 and thereafter® 18% (9% CGST and 9% SGST)
SUBMISSION ON CONTRIBUTION TO NMET FUND:
4.2 The applicant submitted that the activities carried out by NMET is not a ‘supply’ in relation to the operation of the applicant and that activities of the trust are totally independent and has neither any relation with the business of the applicant nor provide any value-addition or even a basic reciprocity to the activities of the applicant at all. The contribution made to the fund is not a consideration to ‘supply’ but only a statutory payment mandated by the law, failing which the applicant wouldn’t be allowed to carry out mining and extraction activities. The applicant submitted that as per Section 7 of the GST Act of 2017, “supply” includes –
(a) All forms of supply of goods or services or both such as sale, transfer, barter, exchange, licensee, rental, lease or disposal made for a consideration by a person in the course or furtherance of business.”
It is to be noted that liability to pay GST will arise only if all the following conditions are satisfied:
i. There must a supply in terms of Section 7 of the GST Act of 2017;
ii. The supply must be in the course of or furtherance of business; and
iii. The supply is not exempted under Section 7(2) or Section 11(1) of the GST Act 2017;
4.3 The applicant submitted that there is no supply made by the trust to the applicant in return for the payment made Lo such trust (i.e. as a quid pro quo for the service received). As stated above, the objective of the trust is to work for the purposes such as taking up exploration of areas for regional and detailed exploration, giving priority particularly to strategic and critical minerals, etc. There is neither ‘supply’ nor rendition of ‘service’ to the applicant. The payment made by the applicant is purely in the nature of contribution and cannot be regarded as consideration.
4.4 Further, the applicant contested that it also requires to be evaluated whether the supply is in the course of business in terms of Section 7 of the GST Act of 2017 or otherwise. The Trust is a non-profit organisation and not involved in the course of any business, trade or commerce. Hence, there is no supply made in terms of section 7 of the GST Act of 2017 and therefore, the liability to pay tax does not arise.
4.5 The applicant argued that contribution to NMET is not a part of the consideration paid to the Govt. of Goa for licensing services against the right to use minerals including its exploration and evaluation and hence, should not be clubbed along with royalty in the value of supply of licensing services. The applicant submitted that in no way such contribution made to NMET can be regarded as payment towards service by way of royalty or right to use minerals. Had such contribution been towards mining rights, the same would be paid to the State Government. The said sum is used towards purposes such as taking-up exploration of areas for regional and detailed exploration, giving priority particularly to strategic and critical minerals, etc. by NMET independently and cannot be considered as consideration towards mining right.
4.6 The applicant further submitted that the Bombay High Court in the case of Bai Mumbai Trust v. Suchitra Wd/o Sadhu Koraga Shetty – Suit (L) No.236 of 2017 dated September 13, 2019, while holding that, a supply must involve reciprocal obligations, observed that there should be enforceable reciprocal obligations for supply and unilateral acts, or any resulting payment of damages cannot be encompassed into supply. The applicant further argued that in a recent CBIC circular, where the issue of levy of GST on the service of display of name in the premises of charitable organisation receiving donations was clarified, the Board has clarified that where the recipient is under no obligation (quid pro quo) to do anything in return of donation or gift, there is no GST liability on such receipt. Evidently, it can be inferred that where there is merely some payment and no reciprocal activity/service/goods is supplied, the payment wouldn’t be considered to be made against a ‘supply’ and no GST would be leviable on such payments. Artificially, interpreting such activities as ‘supply’, merely because there is a consideration, being a unilateral act, would tantamount to superfluous interpretation of the law. A prerequisite is that the supply and the payment of consideration thereof must have reciprocity with each other. Consideration could be monetary or a non-monetary consideration.
In respect of contribution to DMF Fund and GMOPFT fund, the applicant has made submission similar as that of contribution to NMET Fund.
PERSONAL HEARING:
5. Personal Hearing in the matter was fixed and conducted on 24.01.2020 and Shri Abhinav Srivastava, duly authorised by the applicant appeared for hearing. Shri Abhinav Srivastava reiterated the arguments and contentions made in the application and as produced above.
DISCUSSION AND FINDINGS:
6. The applicant, M/s Cosme Costa & Sons is a registered partnership firm engaged in the business of extraction and sale of iron ore. In order to conduct the activity of extraction of iron ore, applicant was mandated to obtain following licenses:
