GST on Licensing services for right to use minerals including its exploration & evaluation

In re Ajay Kumar Dabral (GST AAR Uttarakhand)

What is the classification of the service provided by Garhwal Mandal Vikas Nigam (GMVN) to M/s Ajay Kumar Dabral in accordance with notification No. 11/2017 Central Tax (Rate)? What is the Rate of GST on given service for which royalty is being paid?

(i) The services rendered by GMVN is covered under serial no. 257 of Annexure appended to Notification No. 11/2017-Central Tax (Rate) dated 06.2017 (amended from time to time) as “Licensing services for the right to use minerals including its exploration and evaluation”.

(ii) The service namely “Licensing services for the right to use minerals including its exploration and evaluation” is classified under Service Code (Tariff) 997337.

(iii) The services rendered by M/s GMVN to the applicant during the period Q1.07.2017 to 31.12.2018 attract GST at the same rate of central tax as on supply of like goods involving transfee of title in goods i.e 5%.

FULL TEXT OF ORDER OF BEFORE THE AUTHORITY OF ADVANCE RULING

1. This is an application under Sub-Section (1) of Section 97 of the CGST/SGST Act, 2017 (herein after referred to as Act) and the rules made thereunder filed by Shri Ajay Kumar Dabral, Village-Rampur, Selaqui, Dehradun-Uttarakhand seeking an advance ruling on following issue:

(a) Classification of service provided by Garhwal Mandal Vikas Nigam (herein after referred to as GMVN) to Shri Ajay Kumar Dabral in terms of Notification No. 11/2017-Central Tax (Rate) dated 06.2017;

(b) Whether the said service classified under Service Code (Tariff) 9973 , specifically under 997337 as licensing services for the right to use minerals including its exploration and evaluation or as any other service under the said chapter;

(c) Rate of GST for the period 01.07.2017 to 31.12.2018 on services provided by M/ s Garhwal Vikas Nigam to Shri Ajay Kumar Dabral for which royalty is being paid.

2. Advance Ruling under GST means a decision provided by the authority or the appellate authority to an applicant on matters or on questions specified in sub section (2) of section 97 or sub section (1) of section 100 in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.

3. As per the said subsection (2) of Section 97 of the CGST/SGST Act, 2017 advance ruling can be sought by an applicant in respect of :

(a) Classification of any goods or services or both

(b) Applicability of a notification issued under the provisions of this Act,

(c) Determination of time and value of supply of goods or services or both,

(d) Admissibility of input tax credit of tax paid or deemed to have been paid

(e) Determination of the liability to pay tax on any goods or services or both

(f) Whether the applicant is required to be registered

(g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both within the meaning of that term

4. In the present case applicant has sought advance ruling on applicability of GST rate on supply of services & its classification. Therefore, in terms of said Section 97(2)(a) &, (e) of CGST/SGST Act, 2017, the present application is hereby admitted.

5. Accordingly opportunity of personal hearing was granted to the applicant on 19.12.2019. Shri Himanshu Sharma (CA) and Amrit Ashwal (CA), on behalf of the applicant appeared for personal hearing on the said date and submitted that the written submissions to be taken on record. Shri Manish Mishra, Deputy Commissioner, SGST-Dehradun, concerned officer appointed by the State Authority, also present during the hearing

6. From the record submitted by the applicant we find that applicant is registered in Uttarakhand with GSTIN bearing no. 05AINPD6537A1ZM. Before proceeding in the present case, we would first go through the submissions filed by the applicant and the same is summarized as under:

(i) the services rendered by M/ s GMVN to the applicant is classified under service code (Tariff) 997337 as ” right to use minerals including its exploration and evaluation” and the said services rendered by M/s GMVN to the applicant attract GST 5% during the period 01.07.2017 to 31.12.2018 in as much as the minerals extracted by the applicant attract GST 5%.

(ii) the applicant prefers an advance ruling regarding classification and rate of GST applicable on the said service for the period from 01.07.2017 to 31.12.2018.

7. Before deciding the issues in hand, we first go through the agreements/contracts submitted by the applicant in this regard. On perusal of MOUs dated 06.11.2017 & 15.11.2017, the relevant portions are summarized as under:

(a) Both MOUs were signed between GMVN & the applicant;

(b) The applicant had been permitted to extract accessory minerals (sand, gravel , boulder) from the Khasra nos specified therein;

(c) Extraction of accessory minerals will be done manually only;

(d) Monthly installment shall be paid by the applicant by 5^th of said month;

(e) The royalty shall be paid to Mineral Department from the monthly installments received from the applicant

(f) The vehicles registered with Mineral Department shall only be allowed to transport accessory minerals (sand, gravel , boulder)

(g) GST, Income Tax TCS and other fees shall be paid by the applicant

(h) Validity of both the agreements/contracts is upto 30.06.2018.

8. In the present case we are not deciding any wider question but restricting our conclusion to the facts and circumstances which were filed for our consideration in the application. Now we proceed by taking the issue one by one:

(A) Classification of service provided by GMVN to Shri Ajay Kumar Dabral in terms of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.

A.1 On perusal of “Uttarakhand Chugan Niti”, 2016, we find that GMVN has been allotted mineral areas in revenue rivers of Garhwal region to extract accessory minerals (sand, gravel , boulders) after payment of application fees and fulfillment of administrative/ legal formalities. After allotment of said area, GMVN issue tender for extraction of accessory minerals (sand, gravel , boulders) from specified areas. In case of unsuccessful bid for first and second press release, GMVN shall extract accessory minerals from such specified areas. On the clearances of accessory minerals, GMVN or a personal allottee, shall pay same fees pertaining to royalty , stamp fee, development fee etc.

A.2 From above we find that the Government of Uttarakhand had allotted specified areas to GMVN to extract accessory minerals (sand, gravel , boulders) from the same and are required to pay prescribed fees to the Government of Uttarakhand for the said allotted work. GMVN further allotted the said work in particular specified area to the applicant and for that GMVN charging 8r, collecting consideration in the form of money from the applicant and GMVN is paying prescribed fees as royalty to the Uttarakhand Government from the said consideration.

A.3 In this context relevant legal provisions are extracted below:

Annexure appended to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017

A.3 On perusal of aforesaid table, we find that the services rendered by GMVN is covered under serial no. 257 of Annexure appended to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as “Licensing services for the right to use minerals including its exploration and evaluation” having service code (tariff) 997337.

(B) Whether the said service classified under Service Code (Tariff) 9973 , specifically under 997337 as licensing services for the right to use minerals including its exploration and evaluation or as any other service under the said chapter

B.1 Discussed in para (A) supra.

(C) Rate of GST for the period 01.07.2017 to 31.12.2018 on services provided by M/s Garhwal Vikas Nigam to Shri Ajay Kumar Dabral for which royalty is being paid.

C.1 In this context Notification 11/2017-Central Tax (Rate) dated 28.06.2017 (as amended from time to time) is reproduced below:

C.2 The serial no. 17 of the said notification was amended vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018 (applicable w.e.f 01.01.2019) by introducing following entries:

C.3 On perusal of aforesaid tables, we find that description of service i.e “Licensing services for the right to use minerals including its exploration and evaluation”, undertaken by the GMVN does not cover under serial no. 17 (i) to 17 (viia) of the said notification, therefore the service in question falls at residual entry (viii) of serial no. 17 of said Notification.

C.4 We find that the said entry was amended vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018 (applicable w.e.f 01.01.2019) which implies that the service in question provided during the period 01.07.2017 to 31.12.2018 attract GST at the same rate of central tax as on supply of like goods involving transfer of title in goods and w.e.f 01.01.2019 the said service attract GST @ 18%.

C.5 In the instant case goods involved are sand, gravel & boulders and thus their classification and applicable rate of GST are given below:

Since the transfer of title in goods attract GST @ 5%, therefore the supply of service in question also attract GST @ 5% during the period 01.07.2017 to 31.12.2018.

ORDER

In view of the above discussion & findings we hold as under:

(i) The services rendered by GMVN is covered under serial no. 257 of Annexure appended to Notification No. 11/2017-Central Tax (Rate) dated 06.2017 (amended from time to time) as “Licensing services for the right to use minerals including its exploration and evaluation”.

(ii) The service namely “Licensing services for the right to use minerals including its exploration and evaluation” is classified under Service Code (Tariff) 997337.

(iii) The services rendered by M/s GMVN to the applicant during the period Q1.07.2017 to 31.12.2018 attract GST at the same rate of central tax as on supply of like goods involving transfe of title in goods i.e 5%.