QUESTION
Mr. k has purchased mines rights (granites mine) from Rajasthan state
government by paying lease premium ( or by whatever name called)
1. Whether Mr. k is supposed to pay GST on such transaction, or rcm ? ( Mr. k
is registered in GST in Gujarat)
Mr. k is to pay death rent/royalty to mines dept. Rajasthan government on
extraction.
2. what are GST implication on such transaction ?
Mr. k is planning to make agreement with pvt. ltd. co. (where he is director) to
hand-over complete extraction to pvt. ltd. co., according to this pvt. ltd. c.
will extract granites from mines and will process on the blocks of granites and
will convert it into the slabs of granites and will make a sale of it, Mr. k
will raise a bill in lieu of giving rights of extraction on per tone basis
3. what will be the GST implication on such transactions ?
ANSWER
FACTS OF THE CASE: A registered person in Gujarat has purchased mining rights from Rajasthan state government by paying lease premium. Royalty is then paid to the Rajasthan government on extraction of the mines. Further the mining rights will be sub leased to a private limited company in which the registered person is a director.
LAW APPLICABLE: SECTION 12 of IGST Act
(3) The place of supply of
services,''
(a) directly in relation to an immovable property, including services provided
by architects, interior decorators, surveyors, engineers and other related
experts or estate agents, any service provided by way of grant of rights to use
immovable property or for carrying out or co-ordination of construction work; or
---------------------------------------------
shall be the location at which the immovable property or boat or vessel, as the
case may be, is located or intended to be located:
Notification No. 13/2017 Central Tax (Rate)
| 5 |
Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (1) renting of
immovable property, and (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers. |
Central Government, State Government, Union territory or local authority |
Any business entity located in the taxable territory. |
Notification No. 11/2017 Central Tax (Rate)
| 17.Heading 9973(Leasing or rental services, without operator) | ||
| (viii) Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi), (vii) and (viia) above | 9 | - |
INTERPRETATION:
The services provided in form of leasing the mining rights by the Rajasthan State government to a business entity are covered under RCM by Notification No. 13/2017. Therefore the registered person is liable to pay tax on it. Since the Place of supply and Location of Supplier both are located in the same state i.e Rajasthan therefore RGST and CGST shall be payable on this. The person registered in Gujarat shall take up a registration in Rajasthan to discharge this liability. The rate of tax on this shall be 9% + 9% = 18%.
Further Authority for Advance Ruling in Karnataka in case of NMDC Ltd. has ruled that royalty paid in case of mining lease is a part of the consideration payable for the licensing services for right to use minerals including exploration and evaluation falling under the Head 9973 which is taxable at the rate applicable on supply of like goods involving transfer of title in goods upto 31.12.2018. However the same shall be taxable at 9% CGST and 9% SGST from 01.01.2019 onward under the residual entries of Serial No.17 of the Notification No.11/2017-Central Tax dated 28.06.2017.
When the registered person transfers his rights to a private limited company wherein he is a director, the same shall also be classified under SAC 9973 i.e. Leasing or rental services, with or without operator taxable @ 9% CGST and 9% SGST. It is important to note here that since the registered person and the private limited company are related parties therefore valuation must be done as per Rule 28 of CGST Valuation Rules.
CONCLUSION:
So to answer your questions;
Question 1 : whether mr. k is
supposed to pay gst on such transaction, or rcm ? ( mr. k is registered in gst
in gujrat)
Yes RCM will be applicable and the registered person will deposit tax on this
transaction.
Question 2 : mr. k is to pay
death rent/royalty to mines dept.-rajsthan government on extraction. what are
gst implication on such transaction ?
As per Advance ruling in case of NDMC LTD., royalty paid shall be taxable at the
rate applicable on supply of like goods involving transfer of title in goods
upto 31.12.2018.
However the same shall be taxable at 9% CGST and 9% SGST from 01.01.2019 onward
under the residual entries of Serial No.17 of the Notification
No.11/2017-Central Tax dated 28.06.2017
Important note - Supreme Court in case of M/s Lakhwinder Singh vide order dt. 04.10.2021 has stayed the payment of GST for grant of mining lease/royalty until further orders.
Question 3 : mr. k is planing to make agreement with pvt. ltd. co. (where he is director) to hand-over complete extraction to pvt. ltd. co., according to this pvt. ltd. c. will extact granites from mines and will process on the blocks of granites and will convert it into the slabs of granitesand will make a sale of it, mr..k will raise a bill in lieu of giving rights of extraction on per tonne basis. what will be the gst implication on such transactions ?
Valuation of the transaction between related parties must be done as per Rule 28 of CGST Rules. Tax shall be deposited by the supplier under forward charge mechanism. (Reply dt. 27/12/2021)