Royalty amount for mining is to be included while arriving at the transaction value for payment GST

The AAR, Chhattisgarh in the matter of M/s Shanti Enggicon Private Limited [Advance Ruling No. STC/AAR/09/2020 dated November 25, 2020] has ruled that Royalty amount is includable while arriving at the transaction value for payment of applicable Goods and Services Tax ("GST") on the supply of services rendered by the assessee to the main contractor under Section 15 of the Central Goods and Services Tax Act, 2017 ("the CGST Act") and 18% GST is applicable on Royalty amount under the Reverse Charge Mechanism ("RCM").

Facts

M/s Shanti Enggicon Private Limited ("the Applicant") was awarded the mining work on back to back basis by the M/s KCC-MBBL ("Main Contractor") with all the terms and conditions and specifications mentioned in the tender allotted to the Main Contractor by M/s NTPC Ltd. All the purchases and execution work was done by the Applicant.

The Government of Chhattisgarh Mining Department vide Notification No. F7-29/2012/12 dated March 5, 2018 ("NN. 29") imposed royalty on soil used in earthwork and also charged the royalty rate structures of certain minerals to be applicable from April 1, 2018. 

The Applicant paid the royalty to State Government from his bank account by selecting the tax payer name of Main Contractor. Further, the Applicant paid all the cost of royalty clearance from the Mining office and also the royalty challan from his bank account and accordingly, the Applicant contended that it is Applicant who has received services from the Government and GST should be paid under RCM by them on the royalty charges to be reimbursed by the Main Contractor. Further, the Applicant stated that the royalty on soil is levied under Chhattisgarh Mining Act which will be recovered from the Main Contractor thus, it should be added in the value of supply of service as per Section 15 of the CGST Act and liable for payment of GST. 

Issues

(1)  Whether the GST is applicable on the royalty amount paid by the Applicant under RCM? (2)  Whether the royalty amount is includable in the value of supply of service as per Section 15 of the CGST Act and liable for payment of GST?

Held

The AAR, Chhattisgarh in AdvanceRuling No. STC/AAR/09/2020 held as under:

• Noted that,the service received by the Applicant from the State Government is covered under the Service Accounting Code-997337-Licensing Services for the right to use minerals including its exploration and evaluation, as the State Government has been providing the licensing service for the right to use minerals after its exploration and evaluation. 
• Observed that, as per Sl. No. 5 of the Notification No. 13/2017- Central Tax (Rate) dated June 28, 2017 ("the Services RCM Notification"), services provided by the Government to a business entity attracts GST under RCM by the recipient of those services. 
• Further stated that, the applicability of GST rate for the service is to be based on the classification of service under the sub heading 997337, covered under Entry No. 17 of the Notification No. 11/2017- Central Tax (Rate) dated June 28, 2017 ("the Services Rate Notification") attracting the same rate as applicable supply of goods involving transfer of title in goods. 
• Held that, the business entities availing mining rights including its exploration and evaluation shall be charged to GST at the rate of tax as applicable on supply of like goods being mined i.e. at the rate of 18% under RCM. 
• Further held that, the royalty amount paid by the Applicant is includible while arriving at the transaction value for payment of applicable GST on the supply of services rendered by the Applicant to the Main Contractor as stipulated under Section 15 of the CGST Act. 

Relevant Provisions

Section 15 of the CGST Act

"Value of taxable supply-

(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The value of supply shall include–––

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.

Explanation––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

(3) The value of the supply shall not include any discount which is given––

(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and (b) after the supply has been effected, if–

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.

(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.

Explanation- For the purposes of this Act,––

(a) persons shall be deemed to be "related persons" if––

(i) such persons are officers or directors of one another’s businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family;

(b) the term "person" also includes legal persons;

(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related."