GST Classification & Rates for Aggregates & Royalty: In re R.V Minerals

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:

1. Classification of Goods and Services: What is the classification of goods and services for the consideration charged for supplying aggregates and recovering royalty charges?
2. 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:

1. Classification of Goods and Services: Royalty charges fall under SAC 997335, and aggregates fall under HSN code 251710.
2. 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.