Mining Royalty-Linked DMF Payments Exempted From GST Prospectively: AAAR Telangana

In re Singareni Colleries Company Ltd (GST AAAR Telangana)

The appeal was decided by the GST Appellate Authority for Advance Ruling, Telangana under Section 100 of the Telangana Goods and Services Tax Act, 2017, against Advance Ruling Order No. 31/2022 dated 07.06.2022 passed by the Telangana State Authority for Advance Ruling. The applicant is a government-owned coal mining company, jointly owned by the Government of Telangana and the Government of India, engaged in extraction of coal through mining leases in the State of Telangana.

Under the Mines and Minerals (Development and Regulation) Act, 1957, the applicant is required to pay royalty to the State Government based on the quantity of minerals extracted. In addition, Section 9B mandates contribution of 30% of royalty to the District Mineral Foundation (DMF), and Section 9C mandates contribution of 2% of royalty to the National Mineral Exploration Trust (NMET). The applicant sought advance ruling on the classification and taxability of royalty payments and on the GST liability applicable to contributions made to DMF and NMET.

The Authority for Advance Ruling, in its order dated 07.06.2022, ruled that royalty paid in respect of mining lease fell under tariff item 997337 and attracted GST at 9% CGST and 9% SGST. It further ruled that the same tax rate applicable to entry 997337 would apply to contributions made to DMF and NMET.

Aggrieved, the applicant filed an appeal before the Appellate Authority raising multiple questions, including whether royalty is liable to GST, whether services fall under entry 9973 and attract 5% tax even after 01.01.2019, whether statutory contributions to DMF and NMET can be treated as consideration for mining lease, whether payments to the State Government and contributions to DMF and NMET constitute payment to one or more persons, and whether GST is payable under forward charge or reverse charge.

The Appellate Authority first examined the scope of the appeal and held that only the question relating to whether statutory contributions made to DMF and NMET could be treated as consideration for mining lease had been raised before the lower authority. Consequently, only that issue was examined on merits, while the remaining questions were held to be beyond the scope of the appeal.

On merits, the applicant contended that for a transaction to qualify as a supply under Section 7 of the CGST Act, it must be in furtherance of business and for consideration. It was argued that payments to DMF and NMET were in the nature of statutory contributions and not consideration. The applicant further contended that DMF and NMET were independent trusts, not Government or local authorities, and therefore payments to them could not attract GST under reverse charge. It was also argued that such contributions were not made in furtherance of business.

The Appellate Authority noted that the applicant was carrying on mining activities under leases granted by the State Government and that payment of royalty, as well as contributions to DMF and NMET, were mandatory statutory obligations linked directly to mining operations. It observed that failure to make such payments would legally hamper the applicant’s right to extract coal. The Authority held that although termed as “contributions”, the amounts payable to DMF and NMET were fixed percentages of royalty prescribed by statute and therefore could not be equated with voluntary donations. As the payments arose directly out of mining activity and were compulsory in nature, they were held to be made in the course or furtherance of business.

The Appellate Authority thus concluded that contributions to DMF and NMET formed part of the statutory payments connected with mining royalty and were not independent of the mining lease.

However, the Authority also took note of a subsequent clarification issued by the Central Board of Indirect Taxes and Customs vide Circular No. 206/18/2023-GST dated 31.10.2023. The circular clarified that District Mineral Foundation Trusts (DMFTs) set up by State Governments perform functions relating to drinking water supply, environmental protection, healthcare, education, welfare of women and children, and other social infrastructure in mining-affected areas. These activities were noted to be similar to those listed in the Eleventh and Twelfth Schedules of the Constitution, and the services provided by DMFTs were rendered free of charge without any consideration from beneficiaries. Based on this, the circular clarified that DMFTs qualify as Governmental Authorities and are eligible for the same GST exemptions as available to Governmental Authorities.

In light of this clarification, the Appellate Authority ruled that contributions made by the applicant to DMF were not liable to GST. However, the circular did not extend similar clarification or exemption to NMET. Accordingly, the Appellate Authority held that contributions made to NMET continued to be liable to GST, and on this aspect, the ruling of the lower authority was upheld.

The Appellate Authority allowed the appeal partly. It ruled that GST is not applicable on contributions made to DMF with effect from the date of the order, and clarified that no refund would be admissible for any GST already paid on such contributions. In respect of contributions made to NMET, the appeal was rejected and the earlier advance ruling was confirmed.

FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, TELANGANA

In terms of Section 102 of the Telangana Goods and Services Tax Act, 2017 (TGST Act, 2017 or the Act), this Order may be amended by the Appellate Authority so as to rectify any error apparent on the face of the record, if such error is noticed by the Appellate Authority on its own accord, or is brought to its notice by the concerned officer, the jurisdictional officer or the applicant within a period of six months from the date of the order. Provided that no rectification which has the effect of enhancing the tax liability or reducing the amount of admissible input tax credit shall be made, unless the applicant or the appellant has been given an opportunity of being heard.

2. Under Section 103 (1) of the Act, this advance ruling pronounced by the Appellate Authority under Chapter XVII of the Act shall be binding only

• On the applicant who had sought it in respect of any matter referred to in sub-Section (2) of Section 97 for advance ruling;
• On the concerned officer or the jurisdictional officer in respect of the applicant.

3. Under Section 103 (2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the original advance ruling have changed.

4. Under Section 104 (1) of the Act, where the Appellate Authority finds that advance ruling pronounced by it under sub-Section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such advance ruling has never been made.

1. The applicant, M/s Singareni Colleries Company Ltd, Head office, Kothagudem Collieries, Kothagudem, Badradri, Telangana 5071014 (GST NO. 36AAACT8873F1Z1) (hereinafter referred to as `M/s Singareni” or “the applicant”) are mainly into extraction of coal. The applicant is a government owned coal mining company. The company is jointly owned by the Government of Telangana and Government of India. They operate mines in the state of Telangana. They have coal mining projects in various places. During the process of mining operations, the applicant is required to pay royalty under Mines and Minerals (Development 86 Regulations) Act, 1957. Further, as per sections 9B and 9C of Mines and Minerals (Development 86 Regulations) Act, 1957, the applicant shall contribute 30% of royalty to District Mineral Foundation and 2% of royalty to ”National Mineral Exploration Trust.

2. The applicant filed an appeal before the lower authority seeking advance ruling on the following questions.

• Whether, royalty paid in respect of mining lease can be classified under ‘Licensing services for the right to use minerals including its exploration and evaluation falling under the heading 9973 attracting GST at the same rate of tax as applicable on supply of like goods involving transfer of title in goods”?
• Determination of the liability to pay tax on contributions made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) as per MMDR Act, 1957?

BRIEF FACTS:

3. After due process of law, the lower authority, vide its order No. 31/2022, dt. 7.6.2022, has given the ruling as under:

4. Aggrieved by the above ruling, the applicant filed the present appeal before this Appellate Authority on the following questions:

• Whether royalty is liable to tax under GST?
• Whether the services can be classified under entry 9973 and will continue to attract 5% even after 1.1.2019?
• Whether the statutory contributions made to DMF and NMET as per Mines and Minerals (Development 86 Regulation) Act, 1957 (MMDR Act, 1957) which are independent trusts having the status of corporeal person, can be treated as consideration for mining lease?
• Whether payments to State Government and contributions to DMF 86 NMET for social service can be regarded as payment to one person or two persons?
• Whether GST is payable under forward charge? Since the trust established under Section 9B and 9C of the MMDR Act does not fall under the definition of Government and therefore, GST is not liable to be paid under reverse charge.

5. On the above questions, the present appeal is filed by the applicant. At the outset, this authority makes it clear that as per sub section 1 of section 100 of the CGST Act, 2017, read with similar provisions of the TSGST Act, 2017, an applicant aggrieved by any advance ruling pronounced under sub section (4) of section 98, may appeal to the Appellate Authority.

WHETHER THE APPEAL IS FILED IN TIME:

6. The applicant has informed in the application filed before this authority that the date of communication of advance ruling is 7.6.2022. The application is filed on 5.7.2022. Hence, the application is found to be filed in time i.e. within thirty days from the date of communication of advance ruling.

PERSONAL HEARING:

7. A personal hearing was held on 5.12.2025. Shri Ashwani Pahuwa (CA), and Sri Anuragh Sadhu (CA), Authorised Representatives. Sri B. Sridhar, DGM (F&A) and Sri N. Sridhar DGC (F&A) have appeared for the personal hearing during the course of which they reiterated the submissions made in their appeal and requested to consider the same.

DISCUSSIONS & FINDINGS :

8. As per the questions raised before this authority as brought out above at Sl. No. 4 (i) to (v), this authority finds that only question No. 4(iii) has been raised before the lower authority whose rulings are being challenged before this authority. Since the questions at Sl.nos.4 (i), (ii), (iv) and (v) above were not raised before the lower authority, this authority opines that the same do not merit for consideration in this appeal proceedings.

9. Whether the statutory contributions made to DMF and NMET as per Mines and Minerals (Development & Regulation) Act, 1957 (MMDR Act, 1957) which are independent trusts having the status of corporeal person, can be treated as consideration for mining lease?

The applicant, inter alia, contended the ruling of the lower authority that the tax rate applicable for entry 997337 is applicable to DMF and NMET, on the following grounds:

• As per section 7 of the CGST Act, 2017, supplies should meet two tests i.e. supplies are made in furtherance of business and for consideration.
• As per Section 7(2) of the Act, with respect to specified activities or transactions with Government, they shall be regarded as supply even if they are not done in furtherance of business since Government does not engage in any business activity. In order to levy tax under the section, the transaction undertaken shall be with either Central Government or State Government or Local Authority.
• In respect of activities or transactions falling under Section 7(1) of the Act, the liability to pay GST will be on the service provider under forward charge basis and not on the appellant.
• DMF and NMET cannot be regarded as any of the notified agencies mentioned to attract reverse charge in the hands of the applicant.
• The payment made by the appellant is purely in the nature of contribution and cannot be regarded as consideration.

10. The applicant i.e. M/s Singareni Colleries Ltd., is a government owned coal company jointly owned by the Government of Telangana and Government of India. They operate mines in the state of Telangana spread over in six districts namely Asifabad, Mancherial, Peddapalli, Jayashankar Bupalpally, Khammam and Bhadradri Kothagudem and supply coal to various customers.

11. As per the Mines and Minerals Act, the miners pay royalty to the State Government on the basis of quantum of minerals extracted. Section 9 of the MMDR Act mandates applicant to pay royalty at the rate prescribed. Apart from this, section 9B and 9C of the said Act mandates that the applicant shall contribute 30% of royalty to District Mineral Foundation (constituted on State Level) and 2% of royalty to National Mineral Exploration Trust (NMET). The appellant seeks an appeal against the advance ruling with regard to tax liable under GST on such contributions to DMF and NMET.

12. The State government has allotted the said mines for the mining activity and for the same activity they are required to pay the royalty. Thus, the activities of the applicant squarely gets covered under the definition of ‘business’ under CGST Act, 2017. For this mining activities, they are also required to contribute an amount of 30% of royalty towards DMF and 2% of royalty towards NMET under the specific provisions of the MMDR Act. This payment to both the trusts is on account of their mining operations being carried out in the State. Thus these contributions get covered under ‘any other activity whether or not it is for a pecuniary benefit and also towards furtherance of their business’. There is no dispute that the applicant pays royalty as well as payment towards DMF and NMET. In case of failure to contribute to the above, the rights of coal extraction would legally get hampered. This authority wishes to make it clear that donations are always contributory in nature without having any percentage fixed on it, however, since in this case the amounts to be paid towards the above account are fixed at a percentage of royalty amount, thus, the same cannot be considered as contribution but mandated payments.

13. Accordingly, based on the above discussions, no different conclusion other than that can be drawn is that the applicant’s payment to DMF and NMET merits as a part of mining royalty which is paid in the course or furtherance of business.

14. However, the CBEC, Dept of Revenue, Government of India vide circular no.206/18/2023-GST dt. 31.10.2023 have issued the following clarification:

Whether District Mineral Foundations Trusts (DMFTs) set up by the State Governments are Governmental Authorities and thus eligible for the same exemptions from GST as available to any other Governmental Authority.

5.1 DMFTs work for the interest and benefit of persons and areas affected by mining related operations by regulating receipt and expenditure from the respective Mineral Development Funds created in the concerned district. They provide services related to drinking water supply, environment protection, health care facilities, education, welfare of women and children, supply of medical equipment etc.

5.2 These activities are similar to activities that are enlisted in Eleventh Schedule and Twelfth Schedule of the Constitution. The ultimate users of the various schemes under DMF are individuals, families, women and children, farmers/producer groups, SHGs of the mining affected areas etc. The services/ supplies out of DMF are provided free of charge and no consideration is realized from the beneficiaries by DMF against such services.

5.3 Accordingly, it is clarified that DMFT set up by the State Governments are Governmental Authorities and thus eligible for the same exemptions from GST as available to any other Governmental Authority.

In view of the above clarification, it is ruled that the contribution made towards DMF is not liable to GST. The clarification does not cover the contributions towards NMET. Therefore, the contribution towards NMET is liable to GST, as discussed above.

15. In view of the above discussions we pass the following order:

ORDER

1. In respect of contribution to DMF Trust, the appeal is allowed and it is ruled that GST is not applicable to this extent. This Ruling shall be with effect from the date of this order and no refund of tax already paid in this aspect, if any, shall be made.

2. In respect of contribution to NMET as per Mines and Minerals (Development 86 Regulation) Act, 1957 (MMDR Act, 1957), there is no merit in the appeal filed by the appellant and thus the ruling of the lower authority is upheld.