CA Manoj Nahata 
1. Whether ITC can be claimed on inward supplies by the recipient when consideration is paid through book adjustment?
Held: Yes
In the case of M/s Senco Gold Ltd.-AAR West Bengal, the applicant is engaged in the manufacturing and retailing of jewellery and articles made of gold, silver, platinum, diamonds and other precious stones. Apart from his own retail stores, he also maintains a network of franchisee- operated stores. He grants such a franchisee the right and license to operate a showroom and to use, in connection therewith, certain Proprietary Marks and System. The applicant raises tax invoices on the franchisee for the supply of jewellery and other articles and also for Franchise Support Services in terms of the Agreement periodically. The Franchisee also raises tax invoices on the Applicant for the supply of old gold, silver etc., received from the customers. He intends to settle the mutual debts through book adjustments. He seeks an advance ruling on whether the input tax credit is admissible when he settles through book adjustment the debt created on inward supplies from the Franchisee?
The Applicant argues that apart from the second proviso to section 16(2) of the GST Act, the GST Act nowhere makes availing of input tax credit dependent upon the payment to be made for the inward supply. The captioned proviso also does not prescribe or restrict the mode in which the payment has to be made. The Applicant submits that payment through adjustment of the books of accounts is a prevalent commercial practice. The Applicant also referred to rule 19(8) of the West Bengal Value Added Tax Rules, 2005.
The Authority, by referring to section-49(2), provided that it does not prohibit the Applicant from reporting in the return input tax credit when consideration is paid to the supplier by way of book adjustment. In fact, section 49 does not deal with the mode of the transaction between the recipient and the supplier. Third proviso to section-16(2) clearly states that no input tax credit is admissible unless the recipient pays the supplier the consideration for the supply received. The most common asset class used for such payment is money, although other assets unless specifically excluded by law, may be used provided the payee accepts. The definition of ‘consideration’, in the present context cast the net so wide that almost no form of payment is excluded, thus incorporate the payment made by book adjustments.
The Authority ruled that the applicant can pay the consideration for inward supplies by way of setting off book debt.
2. Whether supply of pure food items such as sweetmeats, namkeens, cold drink and other edible items from a sweetshop which also runs a restaurant is a transaction of supply of goods or a supply of service?
Held: Supply of goods
In the case of Kundan Misthan Bhandar-AAAR Uttarakhand, the applicant is running sweetshop and a restaurant in two distinctly marked separate parts of the same premises and is also maintaining separate accounts as well as separate billings for the two types of business. The goods sold from the sweetshop are being billed exclusively as sweetshop sales; whereas the goods supplied from the restaurant are billed under restaurant head. The applicant sought a ruling whether supply of sweetmeats, namkeens, cold drink and other edible items from a sweetshop is a supply of goods or supply of services.
In response to this question, the Authority for Advance Ruling ruled that the supply shall be treated as supply of service and sweetshop shall be treated as extension of restaurant.
Aggrieved by the said ruling, the applicant filed an appeal to the Appellate Authority for Advance Ruling. The Appellate Authority stated that nature of the business establishment making supply of food, drinks and other articles for human consumption will not determine whether the same is a supply of goods or services but will depend on the constituents of each individual supply and whether same satisfies the conditions/ ingredients of a ‘composite supply’ or ‘mixed supply’, as defined under Section 2(30) and 2(74) of the CGST Act respectively. Composite supply’ is defined as “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services 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.
Thus when the goods such as sweets, namkeens, cold drinks and other edible items are supplied to customers in the restaurant or as takeaway from the restaurant counter and which are being billed under restaurant sales head should fall under ‘composite supply’ with restaurant service being the principal supply. Since supply of food in this case, is naturally bundled with the restaurant service. The taxability of all such goods supplied to or through the restaurant will be governed by the principal service i.e. restaurant service and GST rate with applicable conditions will also be applicable to all such goods also. Input credit will not be allowed in this case. All goods which are supplied to customers through sweetshop counter have no direct or indirect nexus with restaurant service. Anyone can come and purchase any item of any quantity from the counter without visiting the restaurant. The billings of such sales are also done separately. Thus such sales, by no stretch of imagination, can be clubbed with restaurant service. These sales do not satisfy the basic requirement of ‘composite supply’ i.e. ‘being naturally bundled and supplied in conjunction with each other’. These sales are completely independent of restaurant activity and will continue even when the restaurant is closed, either temporarily or permanently. Hence such sales will be treated as supply of goods with applicable GST rates on the items sold. Input credit will be allowed on such supply.
3. Whether GST paid on building materials, such as cement, concrete, bricks, cement or marble or stone slabs or tiles, paint, polish and any other building materials meant for repair of building and GST paid on supply of labour for carrying out for repair of building shall be available for ITC? Will it make any difference if aforementioned works are carried out in a composite manner as a works contract, where material as well as labour is supplied by a contractor as a composite supply under works contract?
Held: To the extent capitalized not allowed
In case of M/S Rambagh Palace Hotels Pvt. Ltd. –AAR Rajasthan, the applicant is a five star deluxe heritage hotel engaged in hospitality business operated under the brand name Taj group. The hotel is run under internationally reputed brand Taj and therefore, there is a challenge to maintain its reputation at very high level. With these objectives, it has to up keep the hotel’s building, equipments, furniture & fixtures, surroundings and its infrastructure in excellent operational condition. In this pursuit, it has to constantly incur expenditure on construction, renovation, repairs and maintenance of hotel’s immovable and movable property. Thus, the applicant sought a ruling regarding the ITC of taxes paid on repairs and maintenance of the hotel.
The Authority observed that nature of work undertaken by the applicant is predominantly for immovable property involving transfer of goods and services; therefore, the activity is works contract for carrying out repair and maintenance work. Further, immovable property includes land, benefits to arise out of land and things attached to earth, or permanently fastened to anything attached to the earth. A reference to section-17 of the CGST Act was made which debars certain activities/ supplies/work from the eligibility to claim ITC. The activity of repair and maintenance which encompasses supply of goods for a construction activity is of immovable nature. The provisions of ITC for the said supply of goods is covered under Section 17(5) (d) read with explanation mentioned therein. Therefore, ITC on GST paid on such goods as mentioned above will not be available to the extent of capitalization of the said goods as mentioned in Explanation of Section 17(5) of the CGST/RGST Act, 2017.
Regarding supply of labour, the Authority stated that supply of manpower is a supply of service and is covered u/s 17 (5) (d) and in relation to construction service. Thus, ITC will not be available on such supply of manpower to the extent of capitalization of the said supply.
If supply of goods and services supplied for construction work of an immovable nature is done in composite manner, i.e. ‘works contract’, then also it falls within the ambit of section-17 (5) (c), resulting in non-availment of ITC to the extent of capitalization of the said goods.
4. Whether the supply of medicines, consumables, surgical items used in the course of providing healthcare services to in-patients and patients admitted for a day procedure such as IVF for diagnosis or treatments which are naturally bundled and are provided in conjunction with each other, would be ‘Composite supply’ and are eligible for exemption under ‘health care services’?
Held: Composite supply, exempt
In case of M/s Kindorama Healthcare Private Limited-AAR Kerala, the applicant renders medical services with experienced professionals. They have categorized the patients as ‘in-patient’ and ‘out-patient’ for administrative purpose. The inpatients are provided with facilities for accommodation, medicines, consumables, implants, dietary foods including surgical procedures for treatment. They issue a consolidated bill against these services. The applicant contends that healthcare services provided by them, they are exempt from payment of tax.
The Authority examined that the patients visit the hospital with basic intention of getting treatment for their ailment. Based on the severity of ailment, they are admitted as inpatients. During the period of admission in the hospital, the patient is under continuous monitoring of doctors and nurses. The invoice raised against these services is a consolidated bill charging for all services. Thus it is clear that the applicant is providing a bundle of services under healthcare services. Also a reference of section-2 (30) of the CGST Act was given which defines ‘composite supply’. The provision of services of supply of medicines, consumables, etc. used in the course of providing healthcare services to inpatients is a composite supply in terms of sec-2 (30) of the CGST Act.
The Authority ruled that in case of inpatients, the applicant provides a bundle of supplies which is classifiable as healthcare services eligible for exemption under GST.
5. Whether the Bounce Charges collected by a bank for dishonor of cheques should be treated as a supply under the GST regime?
Held: Yes
In the case of Bajaj Finance Ltd.-AAR Maharashtra, the applicant is a non-banking financial company and is providing various types of loan such as auto loans, loan against the property, personal loans, consumer durable goods loans, etc., to their customers and charge interest on such loans disbursed, for which they enter into agreements with borrower/customers. The agreements provide for repayment of the loan in the form of Equated Monthly Installments (EMI) vide cheque/Electronic Clearing System (ECS), etc. The installment of the loan is computed taking into consideration the amount of loan, duration of the loan and the amount of EMI that would be payable. In case of dishonor of cheque/ECS/NACH or any other electronic or clearing mandate by the customers, the Applicant collects bounce charges, which is in line with the agreed terms and conditions of the agreement. The bounce charges are generally a fixed amount per default committed by the customer. The question sought for ruling is that whether these bounce charges comes within the scope of supply or not?
The applicant is of the view that that such bounce charges collected, are in the nature of penalty/liquidated damages and therefore, the same is not a consideration for supply of service and hence, not be subjected to GST levy. The Bounce Charges are collected on account of failure of the borrower/customer in fulfilling its obligation to ensure that the funds were available to honor a cheque or meet a direct debit for the loan installment. Therefore, the Bounce Charges are not recovered in lieu of, or, in return for any activity.( It is not consideration for the applicant)
The Authority examined that while drafting the agreement the applicant itself has defined ‘Bounce Charges” as charges for dishonor of post-dated cheques, etc. Such bounce charges are collected by them from their customers for the reason that the said customers have dishonored the cheques issued by them towards payments of EMI and the applicant has tolerated the said act of their customers of dishonoring of cheques, etc. As per section 2(31) of the CGST Act, consideration involves monetary value of forbearance of any act. Hence it is clear that the applicant is in receipt of consideration in the form of bounce charges. Again as per schedule-II (5) (e), the applicant has tolerated the act of dishonor of cheque/ECS. However, the applicant argued that for coming within the ambit of schedule-II (5) (e), there must be an agreement to the obligation of tolerating an act. In absence of any such agreement, there cannot be a service. The Authority stated that the applicant has clearly stated in their agreement that in case of dishonor of cheques/ECS, ‘Bounce charges’ shall be collected. It is not additional interest as claimed by the applicant.
The Authority ruled that there is a clear understanding or agreement between the parties in the present case to foresee and tolerate an act or a situation of default on the part of the client for a monetary consideration which is actually a consideration received by the applicant, though in the agreement they may be giving this consideration, other names such as ‘penal charges’, penalty, Bounce Charges, etc., as thought proper by them, but these different nomenclatures in their Agreement would in no way change the actual nature of monetary “consideration” which would clearly be taxable for the supply of services as per Sr.No.5(e) of schedule-II of the CGST Act, 2018.
6. Whether the cleaning services provided to the Northern Railways are exempt under S. No. 3 of the Notification No. 09/2017-Integrated Tax (Rate), dated 28-6-2017 and corresponding Acts?
Held: No
In case of VPSSR Facilities-AAR New Delhi, The applicant has started the business of executing service contract, i.e. cleaning, sanitation, manpower supply, washing, housekeeping, etc. in Delhi and outside Delhi. The applicant has applied for and has been awarded a contract from Northern Railway, New Delhi for providing services in relation to housekeeping, cleaning, sanitation, and waste management, locomotives cleaning and washing at Delhi. The Northern Railway has refused in writing to pay GST to the applicant on the basis of S. No. 3 of Notification No. 9/2017 – Integrated Tax (Rate), dated 28.06.2017. Thus applicant applied for advance ruling questioning whether the cleaning services provided to Northern Railway is exempt or not?
The applicant is of the view that their business is to execute service contract, i.e. cleaning, sanitation, manpower supply, washing, housekeeping, etc. in Delhi and outside Delhi, station, building cleaning, platform cleaning, track cleaning, office and waiting hall cleaning, toilet cleaning, circulating area cleaning, shed floor, pits, urinals, desalting of manholes, underground drains and open drains, disposal of industrial waste to dumping ground, loading of ferrous scrap, cutting of grass and shrubs and removal of cobwebs. So the same shall be classified under the levies and GST @ NIL taxable.
The Authority found that for the impugned services to be covered under the S. No. 3 of the Notification No. 09/2017- Integrated Tax (Rate), dated 28.06.2017,and parallel notifications of CGST and SGST the following aspects need to be examined:
(i) Whether the said cleaning services can be considered as “pure services” or the same are works contract services/composite services involving supply of goods also.
(ii) Whether the service receiver i.e. Northern Railways is covered in any of the categories i.e. ‘Central Government’ or ‘State Government’ or ‘Union Territory’ or local Authority’ or a ‘Governmental Authority’ or a ‘Government Entity’.
(ii) Whether the said cleaning activity is in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India.
In relation to the first question, it is held that in the present case, the cleaning contracts of the applicant with the Northern Railways, which may involve use of consumables such as soap/detergent/chemicals of a minimal quantity and of a very nominal value, are “pure service” contracts.
As far as second aspect is concerned, it is observed that as per Section 3(8) of the General Clauses Act, 1897, the ‘Central Government’ means the President. Therefore, the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of President are also covered in ‘Central Government’. It is observed that contracts by Northern Railway to the applicant have been awarded in the name of the President of India. Hence, it is held that Northern Railway is covered in the said Notification as ‘Central Government’.
Regarding the third aspect, The Authority observed that the Railways cannot be called a Municipality under Articles 243P and 243Q of the Constitution of India. Further, the functions of Railways i.e. transport of goods or passengers are not covered in Schedule XII of the Constitution which covers the constitutional functions of Municipalities. The cleaning services supplied to Railways i.e. cleaning of locomotives, railway stations, railway lines provided by the applicant cannot be said to be covered in Clause (6) of Schedule XII of the Constitution which covers ‘public health, sanitation conservancy and solid waste management’ functions of the Municipalities. The Municipalities are constitutionally entrusted with such functions in relation to urban areas but they are not entrusted with such functions in relation to Railway properties.
The Authority ruled that cleaning services supplied by the applicant to the Northern Railways are not exempted under S. No. 3 of the Notification No. 09/2017 – Integrated Tax (Rate), dated 28.06.2017, as amended by Notification No. 2/2018 – Integrated Tax (Rate), dated 25.01.2018 and parallel Notifications of CGST and SGST.
7. Whether a person is liable to pay tax under the CGST/SGST Act, on merger of his proprietorship firm as a going concern with a private limited company on the fixed assets and currents assets including stocks of raw material, semi-finished and finished goods? Whether ITC available in the credit ledger account or cash ledger account of proprietorship firm shall be transferred to respective credit ledger and cash ledger account of the private limited company, consequent upon merger?
Held: No, only unutilized ITC can be transferred.
In the case of B.M. Industries–AAR Haryana, the applicant is a proprietorship firm as a going concern engaged in manufacture and sale of aluminum profiles, owning fixed assets, current assets and also has long-term as well as current liabilities. The applicant proposes to merge as GOING CONCERN with a private limited company. The question of ruling is that whether the applicant is liable to tax on the merger of proprietorship business with a private limited company?
The applicant contends that Section 7 of the CGST Act, 2017 defines the scope of supply. As per sub-section 1, the supply includes sale, transfer, barter, exchange made for a consideration in the course of or for furtherance of business. The transfer of the applicant’s business as a going concern to a private limited company is not in the ordinary course of business or for the furtherance of business. The selling of business is not the business of the applicant. It, in fact, cannot be called a transaction in the normal course of business or for furtherance of business. It is an extraordinary activity which shall bring the business to an end in the hands of the applicant although it will continue to operate with regularity and permanently in the hands of the buyer. As the action of the applicant is not in the regular course of business nor it has the impact of furtherance of business, therefore, the activity cannot be termed as supply as per Section 7 & hence exempt from the payment of tax. Further Reference was made to schedule-II of the CGST Act. He also stated that Section 18(3), read with Rule 41 allows the transfer of the input tax credit shown in the account of the applicant as balance of the Electronic Cash Ledger and The Electronic Credit Ledger to the respective ledgers of merged company subject to observance of conditions prescribed in Rule 41 of CGST Rules.
The Authority stated that as per Schedule II of the CGST/HGST Act, 2017, para 4 pertains to transfer of business assets. An exception is provided that if the business is transferred as a going concern, then it will not be treated as supply under GST. Regarding the transfer of balance of ITC and cash balance, the CGST Act, through section-18 read with rule-41, makes it clear that in case of merger, a registered person, by filing Form GST ITC-02, electronically on common portal, can transfer unutilized input tax credit lying in his electronic credit ledger to the transferee. Here it is to be noted that these provisions pertains to transfer of unutilized input tax credit. These provisions are not applicable to unutilized balance lying in electronic cash ledger.
8. Whether manufacturing services on physical inputs owned by principal and made available to the principal amounts to job work under GST?
Held: Yes
In the case of M/s Irene Rubbers-AAR Kerala, the applicant is a job worker engaged in the production of rubber backed rubber edged coir mats and polypropylene mats of various designs and size as required by the principal on the materials provided by the principal. The rubber compound required for rubber backing and edging is prepared in a mixing mill. The applicant cuts the material in desired size and mixing the material with molten rubber compound. Accordingly the molten rubber compound and coir materials are fused with the aid of hydraulic press. Lastly, finishing is done and the resultant product is delivered to the principal. The applicant sought a ruling on whether the process of the applicant amounts to ‘job work’ under GST?
The Authority observed that any treatment or process undertaken by a person on goods belonging to another registered person is a job work as defined u/s 2(68) of the CGST Act. As per the circular no.38/12/2018 dated 26.03.2018, it is clarified that, in addition to the goods received from the principal, the job worker can use his own goods for providing the services of job work. The services are performed on physical inputs owned by units other than units providing the services. As such, they are characterized as outsourced portions of a manufacturing process. The value of services is based on the service charges paid, not on the value of goods manufactured.
The Authority ruled that manufacturing services on physical inputs owned by the principal is treated as service by way of job work and is covered under SAC 9988.
9. Whether the supply of diagnostic services such as clinical biochemistry, micro biology, chemotology, radiology, ECG, radiometry etc. are exempt from GST under Notification No.12/2017-CT (Rate) dated 28.06.2017? Whether such diagnostic service provider is liable to take registration under GST?
Held: Exempt, no registration required (except the person is liable to pay tax under RCM)
In the case of M/s. Medivision Scan and Diagnostic Research Center Pvt Ltd.-AAR Kerala, the applicant is a clinical establishment engaged purely in diagnostic services such as clinical biochemistry, micro biology, chemotology, radiology, ECG, radiometry etc. It is coming under the purview of Clinical Establishment Act and rendering services through qualified laboratory technicians, doctors and radiologist.
The applicant is of the view that medical diagnostic services will not attract GST either under forward charge or reverse charge mechanism by virtue of Notification No.12/2017-CT (Rate) dated 28.06.2017. Moreover, as per sec-23(1) (a) of the CGST Act, they are not liable for registration as they are engaged in the business of supplying services which are not liable to tax.
The Authority observed that health care services provided by clinical establishment, an authorized medical practitioner or para medics are exempted by Notification No.12/2017-CT (Rate) dated 28.06.2017. A reference was made to the clause-2 (zg) of the said notification was made which defines ‘health care services’. Clause-2(s) of the said notification defines ‘clinical establishment’. With a conjoint reading of the above two definitions, it can be concluded that a place established as an independent entity or part of an establishment in connection with the diagnosis or treatment of diseases where diagnostic services with the aid of laboratory or other medical equipments comes within the definition of ‘clinical establishments’. Hence all treatment or diagnosis or care for illness, injury, deformity, abnormality or pregnancy by a clinical establishment is covered under health care treatment and are exempted whether it is provided by clinical establishment or in their individual capacity. Hence the services of diagnostic service provider are exempt under the said notification.
Regarding the question of registration, the Authority made reference of section-22, 23 and 24 of the CGST Act. By virtue of sec-23, the diagnostic service provider is not liable to take registration under GST subject to the condition that it is not liable to pay tax under RCM. If the diagnostic service provider is liable to pay tax under RCM, then it will be liable for registration under GST despite of the fact that it is exclusively providing exempt services.
10. Whether an amount charged as interest on transaction based short term loan given by the Del Credere Agent (DCA) to buyers of material is exempt from tax in terms of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017?
Held: Yes.
In the case of M/s. Shreenath Polyplast Pvt. Ltd-AAR Gujrat, the applicant is a Del Credere Agent (herein after referred to as “DCA”) appointed by the supplier of goods (herein after referred to as “principal”) and has dual role, the first role is to promote the sale and take orders for goods to be supplied by the principal directly and the second role is to guarantee the principal for the payment of goods supplied. The applicant clarified that the role of the DCA is limited to order booking and ensuring payment to the principal in case of default from the customer. In the entire transaction, neither principal supplies the goods to DCA, nor does DCA supply the goods to customers. Goods are directly supplied by Principal to the customers at the price declared by the principal from time to time by charging applicable GST on the invoice. On the due date, the customer pays to principal directly for the material supplied to them. In case of any delay in payment from the customer, principal charges interest along with GST. on some occasions, when the buyer is not in a position to pay to principal on the due date, he approaches DCA to extend short term loan and the loan is extended by the DCA by making payment to the principal on behalf of the customer. The loan is repaid to DCA by the customer along with agreed interest.
The applicant contends that amount charged by DCA as interest from the buyer of the materials is not liable to tax in terms of Sr. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. It also stated that DCA is not supplying any Page 2 of 5 3 goods to the customer but it is the principal who is directly supplying the goods to the customers. Thus, interest charged by DCA from customers is not for delayed payment of consideration of any underlying supply but said interest is charged towards loan given to the customers and hence such interest will be covered under item 27 of the table attached to the impugned notification.
The Authority observed that extension of loan by the applicant (DCA) to the customers is a transaction separate from the transaction of supply of goods by the principal to the customers against consideration wherein the applicant (DCA) also gets the commission from the principal. Also by reading section -15 of the CGST Act, it becomes clear that the interest received by the applicant is consideration towards loan extended to the customers and such interest is not towards the payment of consideration for supply of goods by the principal to the customers. Further Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 exempts the services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services).
The Authority ruled that Service provided by a Del Credere Agent by way of extending short term loans in so far as the consideration is represented by way of interest, is covered under Sl. No. 27 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and Notification No. 12/2017-State Tax (Rate) dated 30.06.2017, and hence exempt from payment of Goods and Services Tax.
11. Whether Khadi readymade garments are exempt under GST?
Held: No
In the case of M/s Udyog Mandir-AAR Rajasthan, the applicant is a manufacturer of khadi garments who buys khadi fabrics from the market and gets those fabrics stitched and makes own garments. The khadi fabrics has been made exempt from tax vide Notification No.28/2017-C.T (Rate). The applicant wants a ruling on taxability of the khadi garments manufactured from khadi fabrics.
The Authority observed that Khadi fabric, sold through Khadi and Village Industries Commission (KVIC) and KVIC certified industries/outlets have been exempted from the purview of GST vide Notification No. 02/2017 C.T (Rate) dated 28.06.2017 which was further amended vide Notification No. 28/2017 C.T (Rate) dated 22.09.2017.The said amended notification exempts khadi fabrics and not readymade garments of khadi. The entry for readymade khadi garments is mentioned at Serial No. 170 (GST-5%) and Serial No. 223 (GST-12%) of Schedule-I and Schedule-II respectively of Notification No. 01/2017 –C.T (Rate) dated 28.06.2017 as amended from time to time.
The Authority ruled that the supply of readymade khadi garments is taxable-
If sale value is less than 1000, then 5% GST.
If sale value is more than 1000, then 12% GST.
12. Whether royalty paid in respect of mining lease can be classified under “Licensing 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? Whether contributions made to District Mineral Foundation and National Mineral Exploration Trust as per MMDR Act is liable to tax?
Held: Yes
In the case of NMDC Ltd-AAR Chhattisgarh, the applicant is a state-controlled mineral producer of the Government of India. It is owned by the Government of India and is under administrative control of the Ministry of steel. It is India’s largest iron ore producer and exporter producing million tons of iron ore from fully mechanized mines in Chhattisgarh. The applicant pays royalty @ 15%. Also, sections 9B and 9C of Mines and Minerals (Development & Regulation) Act, 1957 mandates that the miners shall contribute 30% of royalty to District Mineral Foundation and 2% of Royalty to National Mineral Exploration Trust. The applicant seeks clarification as to 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 and whether such statutory contributions made amounts to “Supply” and whether the same is liable for GST under reverse charge.
The applicant is of the view that the entries prescribing the rate of tax for the service code 9973 does not specifically cover the Licensing services for the right to use minerals including its exploration and evaluation and therefore it will be covered under the residuary entry “leasing or rental services, with or without the operator, other than (i), (ii), (iii), (iv) and (v) above”, with applicable tax rate as the same rate of tax as applicable on the supply of like goods involving transfer of title in goods. Accordingly, in such cases, the relevant tax rate as applicable on the underlying natural resource would be applicable on the amount of royalty paid. Since, Iron Ore attract 5% GST Rate, royalty paid for mining of Iron Ore will attract 5% GST Rate.
The Authority made a reference to section-2 (98) of the CGST Act which stipulates regarding liability to pay tax under reverse charge, meaning therein that the liability to pay tax shall be on the recipient of goods/services rather than the supplier of goods/services. Further Reverse Charge Mechanism is applicable for certain notified services as mentioned in Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017. As per SI. No. 5 of the said Notification, services supplied by the Central Government, State Government, Union territory or local authority to a business entity attracts GST, under reverse charge basis by the recipient of such services. Thus Sl. No. 5 of the said Notification states that the services supplied by the Central Government/State Government to a business entity will come under Reverse Charge Mechanism.The applicability thereof of GST rate for the aforementioned service is to be based on the classification of service. The mining right so granted is covered under Heading No. 997337. It specifies ‘Licensing services for the right to use minerals including its exploration and evaluation’. This is covered under Entry No. 17 of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017. On careful scrutiny of the Notification, the aforementioned service is not covered in any of the specifically mentioned descriptions of Entry No. 17 and thereby it qualifies being categorized in the residual clause of Entry No. 17, wherein it has been specified that the rate applicable for such service should be of same rate as applicable for the supply of like goods involving transfer of title in goods. Thus GST is payable on reverse charge basis by the applicant on royalty paid to the Government at the rate of supply of like goods being mined, on account of availing mining rights.
Regarding the tax liability of contributions to DMF and NMET, the main thrust of the applicant is that the amounts given to both the trusts are not a commercial transaction in the course of business and the contributions are made for public welfare activities. The Authority stated that it is amply clear from rules 2(1)(d) and 2(1)(e) of the Chhattisgarh District Mineral Foundation Trust Rules, 2015 that the way in which a Collector of a District enters into an agreement/contract to gain royalty from mining lease of the Government land, in the same way he enters into an agreement with the applicant to make it contribute to both the trusts in addition to royalty. Thus both the trusts uphold parallel rights on ownership rights on Government land with regard to royalty of mining lease. Accordingly it gets concluded that the contribution made by the applicant to DMF and NMET merits treatment as mining royalty in the course or furtherance of business of the applicant.
Again, in terms of section 2(69) of the CGST Act, both DMF and NMET qualify being treated as local authority. On the basis of Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017 there arises the liability of payment of GST upon the applicant on the contributions made to DMF and NMET under reverse charge basis.
