18% GST applicable on Royalty Paid for Licensing Services for Right to Use Minerals including its Exploration and Evaluation: AAR [Read Order]

The Gujarat Authority of Advance Ruling (AAR) ruled that 18% of GST is applicable to the royalty paid for Licensing services for the right to use minerals including its exploration and evaluation.

The applicant, M/s. Raj Quarry Works is a partnership company. The applicant is carrying out mining activity on a plot of land leased from the government of Gujarat. The applicant is quarrying “Black Trap” products used for concrete mixing and sells it to the customers. Black Trap material attracts GST at 5% under Heading 2517 in Schedule-I.

The Applicant has entered into Quarrying lease/license agreement for “Black Trap” material with the Government of Gujarat. The lease was granted vide Collector, Panchmahal’s Order. The said order is pursuant to the Lease Agreement signed between the applicant and the Government of Gujarat. The said lease is operative for 10 years. The applicant leaseholder as per the terms and conditions is required to pay rent of Rs. 2,62,147/- per year or Royalty @ Rs. 250/- per Metric Ton, whichever is higher to the Government of Gujarat.

The applicant sought advance ruling on the issues that what is the classification of service provided in accordance with Notification No. 11/2017-CT (Rate) dated June 28, 2017, read with annexure attached to it, issued by the State Government to M/s Raj Quarry Works, for which royalty is being paid. Whether said service can be classified under Tariff Heading 9973, specifically under 997337 as Licensing services for the right to use minerals including its exploration and evaluation or as any other service.

Another issue raised was what is the rate of GST on given services provided by the State of Gujarat to M/s Raj Quarry Works for which Royalty is being paid.

Lastly, the clarification was sought on whether services provided by the State Government is governed by the applicability of Notification No 13/2017-CT(Rate), dated June 28, 2017, under entry number 5 and whether M/s Raj Quarry Works is taxable person, in this case, to discharge GST under reverse charge mechanism or whether given service is covered by exclusion clause number (1) of entry no 5 and State Government is liable to discharge GST on same.

The AAR consisting of the members Sanjay Saxena and Mohit Agarwal ruled that the activity undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services, with or without operator), as mentioned in the annexure at Serial No. 257 (Licensing services for the right to use minerals including its exploration and evaluation) sub-heading 997337 of Notification Number 11/2017-C.T. (Rate), dated June 28, 2017.

“The activity undertaken by the applicant attracts 18% GST (9% CGST+ 9% SGST),” AAR while ruling on the second issue said.

“The applicant is not covered under exclusion clause 1 of Sr. No. 5 of the Notification. Therefore, the applicant is liable to discharge tax liability under reverse charge mechanism vide Notification No. 13/2017-C.T. (Rate), dated 28-6-2017 (as amended from time to time) of the CGST Act, 2017,” the AAR while ruling on the last issue said.