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In re R.V Minerals (GST AAR Andhra Pradesh)
In the case of In re R.V Minerals (GST AAR Andhra Pradesh), the Advanced Ruling Authority considered several key issues regarding the GST classification and rates applicable to aggregates and royalty charges collected by M/s R.V Minerals. Here’s a detailed summary of the ruling:
Case Background and Facts
M/s R.V Minerals is engaged in manufacturing aggregates (stone crusher unit) from boulders purchased from quarries with mining permits. These aggregates are classified under tariff heading 2517 and attract a GST rate of 5% on their supply.
Additionally, M/s Sudhakar Infra, acting as a collecting agency, collects royalty from quarry leaseholders in East Godavari and Dr. B.R. Ambedkar Konaseema districts under the authority of the mining department. The royalty, classified under HSN 997335, is subject to GST at the rate of 18% under forward charge. The applicant purchases boulders from leaseholders M/s Pranathi Metals and M/s Pavithra Metals, who charge GST at 18% on royalty and 5% on the value of boulders.
Questions Raised
The applicant sought an advance ruling on two main questions:
- Classification of Goods and Services: What is the classification of goods and services for the consideration charged for supplying aggregates and recovering royalty charges?
- GST Rate Applicability: What is the GST rate applicable to these supplies as per Notification No.01/2017-CGST(R) and Notification No. 11/2017-CGST (R)?
Applicant’s Interpretation
The applicant argued that:
- Royalty charges are merely a pass-through cost reimbursed to the government, and should not be subject to GST on the entire consideration.
- They issue separate tax invoices for aggregates and royalty charges, considering them distinct supplies rather than a composite or mixed supply.
- Charging 18% GST on royalty would be challenged by customers, who prefer a 5% tax on the entire invoice.
Discussion and Findings
The Authority deliberated on whether the supplies constituted a composite or mixed supply under GST laws:
- Composite Supply vs. Mixed Supply: It was determined that the supplies of aggregates and royalty are distinct and separately identifiable. Therefore, they do not qualify as composite or mixed supplies, which require a principal supply and a predominant nature of supplies.
- GST Classification and Rates: Considering the submissions and applicable GST notifications:
- Royalty charges (classified under SAC 997335) attract GST at 18%.
- Aggregates (classified under HSN code 251710) attract GST at 5%.
Legal Basis and Precedent
The ruling referred to Circular No. 164/20/2021-GST issued by the CBIC, which clarified the classification of services related to mining rights. This circular supported the differentiation of royalty charges (services under SAC 997335) from the supply of aggregates (goods under HSN 251710).
Conclusion and Ruling
Based on the above considerations, the Advanced Ruling Authority concluded:
- Classification of Goods and Services: Royalty charges fall under SAC 997335, and aggregates fall under HSN code 251710.
- GST Rates Applicable: Royalty charges are subject to GST at 18%, and aggregates are subject to GST at 5%.
This ruling provides clarity on the GST treatment for similar transactions involving the supply of aggregates and the collection of royalty charges, aligning with established classifications and rates under the GST regime.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH
(Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub-section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017)
1. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and SGST Act, 2017 are in parimateria and have the same provisions in like matter and differ from each other only on a few specific Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the APGST Act.
2. The present application has been filed u/s 97 of the Central Goods & Services Tax Act, 2017 and AP Goods & Services Tax Act, 2017 (hereinafter referred to CGST Act and APGST Act respectively) by M/s R.V Minerals(hereinafter referred to as applicant), registered under the AP Goods & Services Tax Act, 2017.
3. Brief Facts of the case:
3.1 M/s R.V Minerals (11pailnaltei referred to as “applicant”) Is, engaged In the business of manufacturing aggregates (Slone crusher will) from the boulders purchased from the quarries having mining permit, The said products are classifiable uncle( tariff heading 251/ and are leviable to GST on their supply at the rote of 5%. Applicant if; having number 37AAZ1:114622G1 ZP.
3.2 M/s Sudhakar Infra (a third-party agency) Is the collecting agency that acquired rights from the mining department for the collection of royalty from the leaseholders of mining quarries In the districts of East Godavari and Dr, B.R Ambedkar Konaseerna. M/s Sudhakar Infra has pled the consideration for the above said rights to the government of Andhra Pradesh and discharging GST liability under reverse charge vide entry No.5 of Notification No.13/2017-CGST (R) dated 28.05.2017 amended from time to time.
3.3 M/s. Sudhakar Infra is collecting royalty from the quarry lease holders i.e. M/s. Pranathi Metals & M/s. Pavithra Metals by charging GST at the rate of 18% under forward charge. M/s. Pranathi Metals and M/s. Pavithra Metals, actually perform mining operations and extract boulders. These boulders will be sold to the applicant. While issuing tax invoices for the sale of boulders, Metals and. M/s. Pavithra Metals are charging GST at the rate of 18% on royalty charges under HSN 997335 and GST at the rate of 5% under HSN 251710 on boulders value. A sample invoice is attached to this application. The applicant will supply the aggregates manufactured from boulders purchased to the customers.
3.4 The applicant also follows the same procedure and issues tax invoices for royalty charges at the rate of 18% under HSN 997335 and for aggregate value at the rate of 5% under HSN 25 1710. A sample invoice is attached for your reference. The customers of the applicant are not willing to pay tax at the rate of 18% on royalty charges and asking us to charge 5% tax on entire consideration.
4. Questions raised before the authority:
The applicant seeks advance ruling on the following:
1. What is the classification of goods and services for the consideration charged from our customers for supplying aggregates and recovering royalty charges?
2. What is the rale of GST on the above supplies as per Notification No.01/2017-CGST(R) and Notification No. 11/2017-CGST (R) ?
On Verification of basic Information of the applicant, it is observed that the applicant is under Central jurisdiction i.e, Aseelmetta Range, Visakhapatnam North Division. Accordingly, the application has been forwarded to the jurisdictional officer and a copy marked to the State Tax authorities to offer their remarks as per Sec. 98(1 ) of CGST /APGST Act, 2017.
5. Applicant’s Interpretation of Law:
5.1 The applicant Levy of Royalty on minerals is a universal concept based premise that mineral resources are “wasting assets”. Royalty form of tax for using minerals and ultimately burden is on the consumer. From the leaseholder of the quarry to the final consumer, the royalty is passed on to all the parties in the supply chain till the final consumer at the rates notified by the government for different minerals.
5.2 The tax invoice we are charging consideration for the supply of aggregates only. The consideration charged against royalty is mere reimbursement of royalty charges paid to the government since the royalty should be passed on to the final consumer. As you know there will be a track for the transportation of minerals from the leaseholder to the final consumer in the form of endorsed transit forms. A sample transit form is attached for your reference.
5.3 If we supply the aggregate without an endorsement of a transit form to any customer, the same would be illegal as the endorsed transit form is proof of payment of royalty on such mineral. Hence, we can say that endorsing transit form is a replica for passing on royalty to the persons consuming the minerals.
5.4 The supply of aggregate along with recovery of royalty charges cannot be treated as composite supply or mixed supply going by the definitions of the same as given in Section 2 of the CGST act. “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or supplies or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; “Mixed” supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.’
5.5 The underlying supply can’t be treated as a mixed supply as we are not charging, a single consideration for two supplies are consideration for each supply is determined separately on reasonable basis. On the other hand, it can’t be treated even as a composite since the two supplies arc predominant. When two supplies arc predominant, the supplies should be classified separately and taxed accordingly. The said view is pronounced by Advance Ruling Authority, Madhya Pradesh in the case of MADHYA PRADESH POWER GENERATING COMPANY LIMITED. The order copy is attached to the application’
5.6 As per the customers’ demand, If we Issue tax Invoices for the supply of aggregates along with recovery of royalty charges at the rate of 5 % under single HSN 2517 , we may end up receiving a demand notice in the future under the allegation of short payment of tax on royalty charges.
6. Personal Hearing:
The proceedings of Personal Hearing were conducted on 01.12.2023, for which the authorized representative, P. Ramesh, CA, attended and reiterated the submissions already made.
7. Discussion and Findings:
We have examined the issues raised in the application in light of the facts and arguments submitted by the applicant. We have considered the submissions made by the applicant in their application for Advance Ruling. We have considered the issues involved from which advance ruling is sought by the applicant and the relevant facts along with arguments made by the applicant and also their submissions made during the time of the personal hearing.
The applicant submitted that they are engaged in the business of manufacturing aggregates (Stone crusher unit) from the boulders purchased from the quarries having mining permit. The said products are classifiable under tariff heading 2517 and are leviable to GST on their supply at the rate of 5%. Further stated that issues tax invoices for royalty charges at the rate of 18% under HSN 997335 and for aggregate value at the rate of 5% under HSN 25 1710.
The issue at hand is to determine the classification of goods and services for the consideration charged from their customers for supplying aggregates and recovering royalty charges and the rate of GST on the above supplies as per Notification No.01/2017-CGST(R) and Notification No. 11/2017-CGST (R).
On careful examination of the submissions made by the applicant ,it is observed that the applicant is collecting tax on the royalty charges collected and the goods supplied separately in the tax invoices. The submissions of the applicant is considered that the supply of the aggregate and recovery of royalty charges do not fall under the purview of mixed supply or composite supply but are two different and separate.
Further the applicant is invited to the Circular No. 164 /20 /2021-GST, dated 06.10.2021 ; In the above circular it was clarified in the para 9. Issued by CBIC:
Services by way of grant of mineral exploration and mining rights ….
9.2.2 It may be noted that the expression “same rate of tax as applicable on supply of like goods involving transfer of title in goods” applies in case of leasing or renting of goods. In case of grant of mining rights, there Is no leasing or renting of goods. Hence, the said entry does not extend to grant of mining rights which Is an entirely different activity.
9.3.1 As regards classification of service, It was recommended by the Council that service by way of grant of mineral exploration and mining rights most appropriately fall under service code 997337, i.e. “licensing services for the right to use minerals including its exploration and evaluation” and were taxable @ 9% CGST and 9% SGST.
Therefore it is concluded that the royalty charges collected by the applicant would fall under SAC 997337 and would attract 9% CGST and 9% SGST. The supply of aggregates manufactured from the boulders would fall under HSN code 251710 and attract CGST g2.5% and SGST @2.5%.
RULING
(Under Section 98 of Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017)
1. Question: What is the classification of goods and services for the consideration charged from our customers for supplying aggregates and recovering royalty charges?
Answer : The royalty charges collected by the applicant would fall under SAC 997337. The supply of aggregates manufactured from the boulders would fall under HSN code 251710
2. Question: What is the rate of GST on the above supplies as per Notification No.01/2017-CGST(R) and Notification No. 11/2017-CGST (R) ?
Answer : The royalty charges collected by the applicant would fall under SAC 997337 and would attract 9% CGST and 9% SGST. The supply of aggregates manufactured from the boulders would fall under HSN code 251710 and attract CGST @2.5% and SGST @2.5% as per the notification 11/2017 and notification 1/2017, dated 28.06.2017 respectively.
