18% GST Applicable on Royalty Charges Received by Leaseholders of Mining Quarries: AAR [Read Order]

The Authority for Advance Ruling ( AAR ), Andhra Pradesh ruled in a recent decision that Royalty Charges collected from the Customers of Mining Quarry Leaseholders are liable to Goods and Services Tax ( GST ) of 18%.

The current Application seeking an Advance Ruling was filed by M/s R.V. Minerals, a manufacturer of stone-crusher units ( aggregates ) constructed using boulders extracted from quarries by mining companies, namely, Pranathi Metals and Pavithra Metals.

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Meanwhile, Sudhakar Infra, a third-party agency has acquired requisite rights from the mining department of the Government to collect royalty charges from the leaseholders of mining quarries in the districts of East Godavari and Dr. B.R. Ambedkar Konaseema.

Sudhakar Infra renders due consideration to the Andhra Government and discharges its GST liability through reverse charge mechanism vide Entry No.5 of Notification No.13/2017-CGST (R) dated 28.06.2017.

A charge of 18% GST is levied by the Applicant to its customers in the form of ‘royalty charges’ levied by classification of the aggregates under the Harmonized System of Nomenclature ( HSN ) 997335.

Similarly, the Applicant also charges GST at 5% for the supply of the aggregates under HSN Code 251710 in light of Notification No.11/2017 and No.1/2017 respectively issued by the Ministry of Finance.

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The Applicant’s tax invoices contains royalty charges of 18% GST levied on their customers. Such tax burden was refused by the Customers of the Applicant who demanded that only 5% GST be levied on the entire consideration paid by them to the Applicant.

It was submitted by the Applicant before AAR that royalty charges are levied at every transaction of the process from production to delivery and the consideration charged against royalty from the customer is a mere reimbursement of the charges to the government.

It was further averred by the Applicant that royalty charges are taxed separately and are exclusive to GST levied on the supply of the Aggregates to the customers; hence, a mixed levy of GST is not feasible in terms of Law.

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The Authority for Advance Ruling, Andhra Pradesh comprising members K. Ravi Sankar, Commissioner of State Tax and B. Lakshmi Narayana, IRS, Joint Commissioner of Central Tax after perusing the material on record expressed that both the levies - GST on supply of Aggregates and GST via Royalty Charges are different and separate and do not fall within the purview of mixed supply or composite supply.

Further, reference was made to Paragraph 9 of Circular No.164/20/2021-GST dated 06.10.2021 to hold that the “said service by way of grant of mineral exploration and mining rights falls under the Services Accounting Code (SAC) No. 997337” pertaining to “Licensing services for the right to use minerals including its exploration and evaluation”.

On the basis of the material on record and provisions of law, the Andhra Pradesh AAR held that royalty charges would fall under SAC 997337 and attract 9% CGST and 9% SGST and the same may be charged by the Applicant from their customers.

To Read the full text of the Order CLICK HERE

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