The CBIC vide Circular No. 164/20/2021-GST dated October 06, 2021 has provided clarification regarding GST rates & classification based on the recommendations of the GST Council in its 45th meeting held on September 17, 2021.
Services by way of grant of mineral exploration and mining rights:
Representations have been received requesting for clarification as to the rate of GST applicable on supply of services by way of granting mineral exploration and mining rights during the period from July 01, 2017 to December 31, 2018. With effect from January 01, 2019, the rate schedule has been specifically amended and it is undisputed since then that such service attracts GST at the rate of 18%.
For the disputed period [July 01, 2017 to December 31, 2018], divergent rulings have been issued by Authorities for Advance Ruling (AAR) and Appellate Authorities for Advance Ruling (AAAR) of various States on the GST rate applicable on the same. AAR, Haryana in case of M/s Pioneer Partners and AAR, Chhattisgarh in case of M/s NMDC have ruled that the service of grant of mining leases is classifiable under Service Code 997337 (licensing services for the right to use minerals including its exploration and evaluation) and attracted, prior to January 01, 2019, the same rate of GST as applicable to minerals, that is, 5% as prescribed against Sl. No. 17, item (viii) of Notification No. 11/2017-Central Tax (Rate). The rate prescribed against this entry prior to January 01, 2019 was “the same rate as applicable on supply of like goods involving transfer of title in goods”. In certain other advance rulings, a view has been taken that grant of rights for mineral exploration and mining would be covered under heading 9991 and would attract GST at the rate of 18%.
AAAR, Odisha, on the other hand has ruled vide Order dated November 05, 2019 in the case of M/s Penguin Trading and Agencies Limited that grant of mining lease was taxable @ 18% prior to January 01, 2019. The Appellate Authority in this case observed that GST rate applicable against Sl. No. 17 item (viii) of Notification No. 11/2017-Central Tax (Rate) prior to January 01, 2019 was not implementable. Unlike leasing or renting of goods, there are no underlying goods in case of leasing of mining area. The rate prescribed for goods cannot be made applicable to leasing of mining area, which confers the right to extract and appropriate minerals. The mining lease by Government, not being a lease of any goods, cannot attract the rate applicable to sale of like goods. Appellate Authority for Advance Ruling, Odisha has further held that the amendment carried out vide Notification No. 27/2018-Central Tax (Rate), dated December 31, 2018, which restricted the “same rate as applicable to supply of goods involving transfer of title in goods” only to leasing or renting of goods was to clarify the legislative intent as well as to resolve the unintended interpretation. It is a settled law that interpretation which defeats the intention of legislature cannot be adopted. It accordingly upheld that “licensing services for the right to use minerals including its exploration and evaluation” falling under service code 997337 were taxable @ 18% during July 01, 2017 to December 31, 2018.
It may be noted that the expression “same rate of tax as applicable on supply of like goods involving transfer of title in goods” applies in case of leasing or renting of goods. In case of grant of mining rights, there is no leasing or renting of goods. Hence, the said entry does not extend to grant of mining rights which is an entirely different activity.
The issue was place before the GST Council in its 45th meeting held on September 17, 2021.
As regards classification of service, it was recommended by the Council that service by way of grant of mineral exploration and mining rights most appropriately fall under service code 997337, i.e. “licensing services for the right to use minerals including its exploration and evaluation”.
As regards the applicable rate for the period from July 01, 2017 to December 31, 2018, the council took note of the following facts, namely,-
(i) GST Council in its 4th meeting held on 3rd & 4th November, 2016 had decided that supply of services shall be generally taxed at the rate of 18%.
(ii) More importantly, the GST Council in its 14th meeting held on 18th & 19th May, 2019, while recommending the rate schedules of services (5%, 12%, 18% and 28%), specifically recommended that all the residuary services would attract GST at the rate of 18%.
(iii) The rate applicable on the service of grant of mineral exploration license and mining lease under Service Tax was also the standard rate of 15.5%. Services under this category have been standard rated in GST at 18%
(iv) Therefore, the intention has always been to tax this activity / supply at standard rate of 18%
Accordingly, as recommended by the Council, it is clarified that even if the rate schedule did not specifically mention the service by way of grant of mining rights, during the period July 01, 2017 to December 31, 2018, it was taxable at 18% in view of principle laid down in the 14th meeting of the Council for residuary GST rate. Post, January 01, 2019 no dispute remains as stated above.
The Circular can be accessed at: https://www.cbic.gov.in/resources//htdocs-cbec/gst/Circular%20No.%20164_2021_GST.pdf;jsessionid=78C42EDA20161CCA3B60E7E05C91D6A8