Page 108 - GSTL_30th April 2020_Vol 35_Part 5

594 GST LAW TIMES [ Vol. 35
6.1 The applicant seeks Advance Ruling as to whether 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 SAC 9973
and what is the rate of GST on the said supply. Further, Section 9B and 9C of the
‘Mines and Minerals (Development & Regulation) Act, 1957 mandates that the
miners shall contribute 30% of the royalty amount paid to the Government, to
the District Mineral Foundation and 2% of the royalty amount to the ‘National
Mineral Exploration Trust’. In this context the applicant seeks Advance Ruling as
to whether the contribution/payment made to the funds can be treated as con-
sideration against supply and whether the same is subject to levy of GST under
Reverse Charge.
7. Royalty is required to be paid as per Section 9(1) of the Mines and
Mineral (Development and Regulation) Act, 1957, which reads as under :
“The holder of a mining lease granted shall, notwithstanding anything con-
tained in the instrument of lease or in any law in force at such commence-
ment, pay royalty in respect of any [mineral removed or consumed by him
or by his agent, manager, employee, contractor or sub-lessee] from the
leased area after such commencement, at the rate for the time being speci-
fied in the Second Schedule in respect of that minerals.”
7.1 The Central Board of Indirect Taxes and Customs (CBIC) in Sectoral
FAQ’s has clarifies that the royalty payment is made towards Licensing services
for exploration of natural resources. The extract of the same is reproduced as un-
der :
“The Government provides license to various companies including Public
Sector Undertakings for exploration of natural resources like oil, hydrocar-
bons, 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 Govern-
ment. 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.”
7.2 The note on ‘Mineral Royalties’ published by the Indian Bureau of
Mines is reproduced as under :
“A lessee is a person who is granted mineral concessions. The lessee is re-
quired to pay a certain amount in respect of the mineral extracted in pro-
portion to the quantity extracted. Such payment is called royalty. The royal-
ties in respect of mining leases is specified in Section 9 of the Mines and
Mineral (Development and Regulation) Act, 1957. Royalty is a variable re-
turn and it varies with the quantity of minerals extracted or removed.”
7.3 As regards classification and SAC of activity related to royalty, the
same have been laid down in the Notification No. 11/2017-Central Tax (Rate),
dated 28-6-2017. The relevant entry is as under :

Heading 9973 Leasing or rental services with or without operator
Group 99733 Licensing services for the right to use intellectual property
and similar products.
SAC 997337 Licensing services for the right to use minerals including
its exploration and evaluation.

GST LAW TIMES  30th April 2020  108