In a set of Frequently Asked Questions (FAQs) released by the Central Board of Excise and Customs (CBEC), it was clarified that the license fee, lease charge, royalty etc paid to the Government for assigning the right to use natural resources are subject to Goods and Services Tax (GST) under reverse charge.
It stated that “The Government provides license to various companies including Public Sector Undertakings for exploration of natural resources like oil, hydrocarbons, iron ore, manganese, etc. For having assigned the rights to use the natural resources, the licensee companies are required to pay consideration in the form of annual license fee, lease charges, royalty, etc to the Government. The activity of assignment of rights to use natural resources is treated as supply of services and the licensee is required to pay tax on the amount of consideration paid in the form of royalty or any other form under reverse charge mechanism.”
It also stated that the Government departments who makes supply of taxable services or goods are bound to register with the GSTN portal like a normal tax payer. “In such cases, the registration shall be obtained on the basis of PAN but Bank account is not mandatory. However, if it is not making any taxable supply of goods and/or services, it is required to register only as a deductor of tax at source on the basis of TAN/PAN.”
Also, the supplier of services can claim the input tax credit on the amount of tax paid under reverse charge mechanism subject to the provisions of Chapter V of CGST Act, 2017 read with Chapter V of the CGST Rules, 2017.
It further explained the concept of tax deduction at source (TDS) under the new indirect tax regime.
For a question, “Are all local bodies constituted by a State or Central Law regarded as local authorities for the purposes of the GST Acts”, the Board answered in negative. “The definition of ‘local authority’ is very specific and means only those bodies which are mentioned as ‘local authorities’ in clause (69) of section 2 of the CGST Act, 2017. It would not include other bodies which are merely described as a ‘local body’ by virtue of a local law,” it said.
Read the full text of the FAQs below.
