Royalty Paid on Mining Lease Contract attracts 18% GST: AAR [Read Order]

The Telangana State Authority for Advance Ruling (AAR) has held that royalty paid in respect of mining lease contracts attracts 18% GST.

The applicant, M/s. Singareni Collieries Company Limited (SCCL) operates mines in the State of Telangana and is allotted 44 renewable mining leases covering an area of 1,50,000 acres by the Government under an agreement. The SCCL is required to pay a royalty to the Government at the rate of 14% on the sale price of coal extracted by them. The applicant approached the AAR to ascertain the rate of the tax rate applicable to the royalty paid.

Mr. S. Anantha Narayanan, CA appeared on behalf of the applicant and submitted that the contracts are for leasing or renting of goods and royalty paid in respect of Mining Lease can be classified under Licensing services for the right to use minerals including its exploration and evaluation falling under the heading 9973 attracting GST at the same rate of tax as applicable on supply of like goods involving the transfer of title in goods.

The Authority observed that Serial no. 17 of the Notification No. 11/2017 chapter heading no. ‘9973’ of SAC enumerates ‘leasing or rental services without an operator’. This entry was modified by removing the ‘with’ operator by Notification No. 27/2018. According to the explanation of this notification, any reference to chapter, section or heading shall be concerning the scheme of classification of services annexed to the notification. In this annexure, the service leasing or renting of goods is enumerated under group head ‘99732’. As against the above entry in the annexure to Notification No. 11/2017 the group head ‘99733’ enumerates leasing services for the right to use the intellectual property and similar products. Under this group, the tariff item ‘997337’ enumerates ‘licensing services for the right to use minerals including its exploration and evaluation’. This is the appropriate entry concerning royalty on mining. Hence the rate of tax of the residual entry is attracted on the royalty paid for mining at the rate of 9% CGST & 9% SGST.

The Coram of Mr. B. Raghu Kiran, IRS, (Central Tax), and Mr. S.V. Kasi Visweswara Rao, (State Tax) have held that District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) as per MMDR Act, 1957 are paid in addition to the royalty payable and in a proportion to the royalty paid for extracting minerals from a contract of mining lease. Therefore, they are considered for the service of the right to use minerals including its exploration and evaluation which is enumerated as tariff item ‘997337’, this is the same as royalty and hence attract tax at the rate of 9% CGST & SGST each.

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