The article summarises the cases in GST regime on the subject that whether Tax under RCM is payable on Dead Rent Payable by registered person to Government for right to extract minerals.
Raj Quarry Works [2020] 117 taxmann.com 423 (AAR – GUJARAT)
1. Facts: Applicant had entered into Quarrying lease/license agreement for “BLACKTRAP” material with Government of Gujarat. The applicant lease holder as per the terms and condition was required to pay Rent of Rs. 2,62,147/- per year or Royalty @ Rs. 250/- per Metric Ton, whichever is higher to the Govt. Of Gujarat.
2. Observation by AAR: The nature of service received is covered under Service Accounting Code 9973 37 – Licensing services for the right to use minerals including its exploration and evaluation. The Government has been providing service of licensing services for right to use minerals after its exploration and evaluation to applicant and applicant has to pay a consideration in the form of rent/royalty to Government. Payment of rent/royalty is for license given to extract minerals and amount of rent/royalty paid is based on the quantum of mineral extracted. Hence it is covered under Service Accounting Code 997337 – Licensing services for right to use minerals including its exploration and evaluation, as it is a license to extract mineral ore and also the right to use such minerals extracted.
3. Held: AAR also answered to applicant question of whether they are covered under exclusion clause (1) of entry No. 5 of the said Notification is that their service is “Licensing services for the right to use minerals including its exploration and evaluation” whereas entry No. 1 is “renting of immovable property”. AAR observed that applicant has taken a mine on lease for quarrying minerals from the Govt. Of Gujarat and said service is not service of Renting of immovable property therefore applicant does not fall under exclusion entry No. 1 of the said Notification. The transaction/service i.e. “leasing of mines” is between the State Government and applicant and the services are supplied by the State Government to the applicant which is a business entity. The subject transaction/service being a supply is not covered under the exceptions, the applicant being the recipient of such service shall have to pay tax on the said supply under reverse charge mechanism as per Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017. Hence the applicant is liable to pay GST under reverse charge mechanism
PKR Projects and Engineers [2019] 112 taxmann.com 10 (AAR – ANDHRA PRADESH)
1. Observation- It was observed by AAR that Government provides license 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, etc. 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 mining lease was governed by the AP Minor Minerals Concession Rules, 2017 (APMMCR). As per provisions of APMMCR, applicant was required to pay dead rent or royalty (whichever is higher but not both). This activity of payment of dead rent or royalty was on supply of service (Licensing services for the right to use minerals including its exploration and evaluation) wherein Government of Andhra Pradesh was supplier and the applicant was recipient. The said service was held to be classifiable under “Licensing services for the right to use minerals including its exploration and evaluation” at Serial No. 257, Heading 9973, Group 99733, sub heading 997337 of annexure “Scheme of classification of Services to Notification No. 11/2017-CT (Rate), dated 28.06.2017. Thus, service undertaken by applicant was held to be falling at item (viii) of serial No. 17 of Notification No. 11/2017, dt. 28-06-2017, further amended vide Notification No. 27/2018-Central Tax (Rate), dt. 31-12-2018 and attracts 18% GST (9% CGST+ 9% SGST) w.e.f. 01.01.2019.
2. Held- The activity undertaken by applicant was held to be classifiable under Heading 9973 (Leasing or rental services, with or without operator), as mentioned in the annexure at Serial No. 257 (licensing services for the right to use minerals including its exploration and evaluation) and sub-heading 997337 of Notification No. 11/2017-CT (Rate), dated 28.06.2017. The applicant was held to liable to discharge tax liability under reverse charge mechanism vide Notification No.13/2017-CT (Rate), dated 28.06.2017 (as amended from time to time) of the CGST Act, 2017.
Vinayak Stone Crusher [2019] 107 taxmann.com 273 (AAR- RAJASTHAN)
1. Facts – Applicant was engaged in business of Crushing of Boulder resulting in to broken or crushed stone, Ballast in the State of Rajasthan. Applicant had been granted mining lease for extracting “Rough Boulder of Stone from the mining ” at Village- Chak Gurjar Balai, Tehsil-Roop was District-Bharatpur (Rajasthan) by Rajasthan State Government on various terms and conditions as per the Lease deed. That the State Mining Department of Rajasthan Government, collect the royalty at the time of dispatch of boulder from the mining place.
2. Held: The mining lease is governed by Rajasthan Minor Minerals Concession Rules, 2017(RMMCR). As per provisions of RMMCR, the applicant is required to pay dead rent or royalty (whichever is higher but not both). This activity of payment of dead rent or royalty is a supply of service (Licensing services for the right to use minerals including its exploration and evaluation) wherein the government of Rajasthan is supplier and the applicant is recipient. The said service is classifiable under “Licensing services for the right to use minerals including its exploration and evaluation” at Serial No. 257, Heading 9973, Group 99733, sub heading 997337 of annexure “Scheme of classification of Services for Notification No. 11/2017-CT (Rate) dated 28.06.2017.
Wolkem Industries Ltd. [2019] 104 taxmann.com 418 (AAR- RAJASTHAN)
1. Facts: That applicant had been granted mining lease for extracting Wollastonite, Calcite, Feldspar and Quartz at village Khertala, Pindwara Tehsil, District Sirohi, Rajasthan by State Government on various terms and conditions as per Lease Deed. That Applicant was required to pay Dead rent/Royalty/Surface rent as per the rate notified by the State Government from time to time.
2. Submission by Petitioner-Royalty or Dead Rent paid by applicant to Government is nothing but an amount paid for getting right to use minerals granted to it for a specified period as per terms of lease. Dead rent payable to Government is consideration against transfer of right to use minerals including its exploration and evaluation as per lease granted by Government of Rajasthan to Applicant.
3. Held: The mining lease is governed by the Rajasthan Minor Minerals Concession Rules, 2017(RMMCR). As per provisions of RMMCR, the applicant is required to pay dead rent or royalty (whichever is higher but not both). This activity of payment of dead rent or royalty is a supply of service (Licensing services for the right to use minerals including its exploration and evaluation) wherein the Government of Rajasthan is supplier and the applicant is recipient. The said service is classifiable under “Licensing services for the right to use minerals including its exploration and evaluation” at Serial No. 257, Heading 9973, Group 99733, sub-heading 997337 of annexure “Scheme of classification of Services to Notification No. 11/2017-CT (Rate) dated 28.06.2017.
Aravali Polyart (P.) Ltd. [2019] 103 taxmann.com 382 (AAR- RAJASTHAN)
1. Facts of the Case- The applicant is engaged in business of mining of soapstone and dolomite the State of Rajasthan. The said products are classifiable under Tariff Heading 2518 and are leviable to GST on their supply at the rate of 5%. For the purpose of undertaking said mining activity, the applicant entered into a transfer agreement with Shri Ramesh Chand Singhvi on 07-04-2007 in order to obtain mining lease of soapstone and dolomite in village “Piparch”, Tehsil Badgon, District: Udaipur. That a document named “Purak Savinda” dated 08-06-2017 was executed by the applicant on stamp paper wherein the period of mining lease was extended up to 14-6-2028.
2. Held: The mining lease is governed by the Rajasthan Minor Minerals Concession Rules, 2017(RMMCR). As per provisions of RMMCR, the applicant is required to pay dead rent or royalty (whichever is higher but not both). This activity of payment of dead rent or royalty is a supply of service (Licensing services for the right to use minerals including its exploration and evaluation) wherein the government of Rajasthan is supplier and the applicant is recipient. The said service is classifiable under “Licensing services for the right to use minerals including its exploration and evaluation” at Serial No. 257, Heading 9973, Group 99733, sub heading 997337 of annexure “Scheme of classification of Services to Notification No. 11/2017-CT (Rate) dated 28.06.2017.
United Mining Corporation [2019] 102 taxmann.com 276 (AAR – HARYANA)
1. Facts: Applicant was granted a mining lease for extracting “Stone along with associated minor minerals” at village “Mankawas-2”, Distt. Bhiwani, Haryana by the State Government on various terms and conditions as per the LoI and Lease deed. That further in accordance with the Part-III (“Covenants of the Lessee”) in para 3(a) of the Lease deed it has been agreed that the bid amount of Rs. 20.99 cr. shall become “Annual Dead Rent” as amount agreed to be paid by lessee and the rate of same shall increase depending upon the terms of auction. Further, 3rd proviso to para 3(a) of Part-Ill of the executed lease deed provide:—
“Provided further that lessee/lessees shall be liable to pay the dead rent or royalty in respect of each mineral, whichever is higher but not both.”
That under para 5 to part-III of the executed lease deed the “Mode of payment of dead rent/royalty and surface rent” has been decided wherein it has been agreed that:—
- The applicant shall deposit one advance instalment of dead rent before commencement of mining operations;
- Royalty on the mineral excavated and dispatched at the rate specified in the first schedule or dead rent, whichever is more and not both on monthly basis.
That in compliance to the said lease agreement the applicant has paid annual dead rent or royalty as the case maybe. That in terms of the executed lease agreement the applicant is required to pay in addition to the annual dead rent, amount to the extent of 10% as rural development fund (for rehabilitation of environment).
2. Held: The services for the right to use minerals including its exploration and evaluation, as per Sr. No. 257 of the annexure appended to Notification No. 11/2017-CT (Rate), dated 28.06.2017 is included in group 99733 under heading 9973. The royalty/dead rent paid/payable to the Government by the applicant is consideration against the transfer of right to use minerals including its exploration and evaluation as per the lease granted by the Government to the applicant.
Poineer Partners [2018] 97 taxmann.com 511 (AAR – HARYANA)
1. Facts: That the applicant has been granted a mining lease for extracting “Stone along with associated minor minerals” at village “Pichopa Kalan”, Distt. Bhiwani, Haryana by the State Government on various terms and conditions as per the LOI and Lease deed. That further in accordance with the Part-Ill (“Covenants of the Lessee”) in para 3(a) of the Lease deed it has been agreed that the bid amount of Rs 16.46 cr shall become “annual dead rent” as amount agreed to be paid by lessee and the rate of same shall increase depending upon the terms of auction. Further, 3rd proviso to para 3(a) of Part-Ill of the executed lease deed provide:—
“Provided further that lessee/lessees shall be liable to pay the dead rent or royalty in respect of each mineral, whichever is higher but not both.”
That under para 5 to part-III of the executed lease deed the “Mode of payment of dead rent/royalty and surface rent” has been decided wherein it has been agreed that:—
- The applicant shall deposit one advance instalment of dead rent before commencement of mining operations;
- Royalty on the mineral excavated and dispatched at the rate specified in the first schedule or dead rent, whichever is more and not both on monthly basis.
That in compliance to the said lease agreement the applicant has paid annual dead rent or royalty as the case maybe. That in terms of the executed lease agreement the applicant is required to pay in addition to the annual dead rent, amount to the extent of 10% as rural development fund (for rehabilitation of environment).
2. Held: The services for the right to use minerals including its exploration and evaluation, as per Sr. No. 257 of the annexure appended to notification no. 11/2017-CT (Rate), dated 28.06.2017 is included in group 99733 under heading 9973. The royalty/dead rent paid/payable to the Government by the applicant is consideration against the transfer of right to use minerals including its exploration and evaluation as per the lease granted by the Government to the applicant.
3. Conclusion- Payment of Dead Rent is nothing but Royalty amount payable and a person is either required to pay dead rent or royalty (whichever is higher but not both). Therefore, if tax under RCM is payable on Royalty then its payable on Dead Rent as well as a person is either required to pay dead rent or royalty whichever is higher.
The only question arises when the amount calculated on per tonne basis is less than the Dead Rent. In such case, whether it still retains characteristic of Royalty or right to use property.
