18% GST payable on Royalty paid under RCM for Mining: AAR [Read Order]

The Authority of Advance Ruling (AAR) has ruled that, GST at the applicable rate is payable by the applicant on the royalty amount under Reverse charge mechanism.

The personal hearing was conducted through virtual mode and the authorized representative Mithiiesh Kumar, CA appeared before the authority to put forward the contentions.

The Authority Bench observed that, “Royalty amount is also includible while arriving at the transaction value for payment of applicable GST on the supply of aforesaid services rendered by the applicant to the main contractor, as stipulated under Section 15 of Central Goods and Services Tax Act, 2017.”

“The Government provides licenses 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, eic. 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.”, the Authority Bench of Member Rajesh Kumar Singh and Member Sonal K Mishra observed from the Sectoral FAQ published by CBEC.

Thus in this case, as the applicant is admittedly availing mining rights including it exploration and evaluation of soil used in earthwork on payment of a consideration to the Government of Chhattisgarh applicable with effect from 1.4.2018 GST is payable on reverse charge basis by the applicant on the consideration so paid to the Government, at the rate of supply of like goods being mined, on account of availing the said mining rights.

Accordingly the authority came to the considered conclusion that, GST was applicable as per the Notification No. 1 1/201 7-CT (Rate), dated 28.06.2017 as amended is included in subheading attracting GST rate @18 % [ 9%+9%].

It was thus ruled that, “GST at the applicable rate is payable by the applicant on the royalty amount under Reverse charge mechanism” and “Royalty amount is also 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 CGST Act, 2017.”

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