THE ODISHA APPELLATE AUTHORITY FOR ADVANCE RULING FOR

GOODS AND SERVICE TAX

(CONSTITUTED UNDER SECTION 99 OF THE ODISHA GOODS AND SERVICES TAX ACT, 2017)

BEFORE THE BENCH OF

(1) Shri Naresh Penumaka, Member (Chief Commissioner, GST, CX & Customs, Bhubaneswar Zone)

(2) Shri Sushil Kumar Lohani, Member (Commissioner, Commercial Taxes & GST, Odisha)

Present For the Appellant

1. Sri Vikram Khaitan, C A

Matter heard on : 23.10.2019

Date of Order : 05.11.2019

M/s Penguin Trading and Agencies Limited Room No 201 & 204, Maa Parvati Enclave, 2nd Floor, Station Road, Barbil, Odisha, Pin - 758035 (Here-in after referred as The Applicant ) filed an application before AAR Odisha on 24 05 2019 under Section 97 of the Odisha Goods and Service Tax Act 2017/CGST Act, 2017 seeking an advance ruling on rate of GST payable by them under Reverse Charge Mechanism on royalty paid to Government for mining of Iron Ore for the period July, 2017 to December 2018

2 0 The Applicant is a Limited company having GSTIN 21AABCP9346E1ZN registered in Barbil Odisha and falls within the jurisdiction of State of Odisha The Applicant is staled to have been granted mining lease for extracting of iron ore in Odisha by the State Government and accordingly is engaged in the business of mining and supply of iron ore As consideration for the mining lease with the license to extract iron ore from the lease area, the Applicant pays royalty to the State Government before removal of the minerals from the lease area.

2.1 In terms of Notfn No.13/2017- Central Tax (Rate) dated 28 06 2017 "the Business Entity located in the taxable territory shall be liable to pay GST under Reverse Charge Mechanism on the service supplied by the Central Government, State Government, Union Territory or Local Authority to a Business Entity . The Applicant is, thus, liable to pay GST on the royalty amount paid to the State Government under reverse charge mechanism. The Applicant has admitted the reverse charge liability and there is no dispute on this account. The Applicant has sought a ruling only on the rate at which GST is to be paid on reverse charge on the royalty paid to State Government during the period from 01.07.2017 to 31.12.2018.

2.2. The Advance Ruling Authority had examined the application and heard the Applicant. After hearing, the members did not agree on the issue of advance ruling on the rate of GST applicable to past supplies transacted during the period from 01 07.2017 to 31.12.2018

3.0. Views of the members of AAR

3.1. Member of AAR, the Joint Commissioner of Central Tax was of the view that the Appellant had filed application for advance ruling on 24.05.2019 on the issue of determination of Rate of GST, payable under Reverse Charge Mechanism, on royalty paid to Government for mining of Iron Ore for the period from July, 2017 to December, 2018 where as sub-section (2) of Section 97 prescribes that the question on which the advance ruling can be sought under this Act, which shall be in respect of - (1) Classification of any goods or services or both; (2) Applicability of a notification issued under the provisions of this Act and (3) Determination of time and value of supply of goods or services or both etc. In view of the above statutory provisions, it is obvious that Ruling should be issued in relation to any activity being undertaken or proposed to be undertaken in the future but not already undertaken in the past. Hence, he was of the view that the present case of the Applicant does not come within the ambit of provisions of Section 97 of the CGST Act, 2017.

3.2. The 2nd member of AAR i.e. the Additional Commissioner of State Tax has a different opinion in this regard As observed by him. Section 97 (2) (b) of the Act, which provides for a ruling on the applicability of a Notification issued under the provisions of the Act also implicitly provides for issue of an Advance Ruling on the applicable rate of GST, since GST rates are prescribed by issue of Notification only. On the other hand, clause (a) of section 95 of the Act defines Advance Ruling as a decision to be provided by the authority or the Appellate Authority in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the Applicant. The said definition does not restrict the scope of issuing ruling in respect of future transactions only Accordingly, It was also observed by him that would not be proper not to issue the ruling on the applicable rate of GST on the mining lease service availed by the Applicant. He also proceeded to draft the order for the ruling that the service under consideration is covered under the service classification code 997337 but the rate prescribed at SI No 17 (viii) of Entry Serial No 17 of Notification No 11/2017-CT (Rate) dated 28. 06. 2017 and matching Notification issued by the Government of Odisha prescribing the rate of GST applicable to supply of the like goods involving transfer of title will not apply to the mining lease service provided by the Government to the Applicant notwithstanding that the said service is classified under the Heading 9973 It was also observed by him that the rate of GST prescribed in column 4 against the residual services in clause (viii) of Entry Serial 17 of Notification No 11/2017 -CT (Rate) cannot simply be implemented for determining the rate of GST applicable to the mining lease provided by Government to all the mining lessees including the Applicant for the simple reason that the supply does not involve lease of any goods but rather conferment of the right to exploit and appropriate the minerals from the lease hold area during the currency of the lease agreement The supply being of the nature of conferring the right on the lessee to mine and appropriate the minerals, the rate prescribed for leasing of goods cannot be applied in this case Hence, the most appropriate rate shall be the default rate of 9% CGST & 9% OGST.

4.0 On reference by the Authority tor Advance Ruling with differing observation by members the Applicant was granted an opportunity of personal hearing on 23 10 2019 Shri Vikram Khaitan. Chartered Accountant appeared on behalf of the Applicant In the course of personal hearing Mr Khaitan reiterated the submissions made m the application and also pleaded for issue of a ruling on the rate of GST applicable on the royalty paid to Government as consideration for the mining lease granted in favour of the Applicant At the time of hearing he filed copies of the following Advance Rulings issued by different Authorises of different States on the same question, i e ruling on the rate of GST applicable on mining lease service for consideration and precedence

It was also submitted that, in every ruling issued by the Authorities of other States i.e. Rajasthan, Haryana. Chhattisgarh, Madhya Pradesh and Karnataka, it has been held that the service under consideration i.e, mining lease service is classifiable under the head 99733 and the rate of GST applicable on such services shall be 5% (rate of tax applicable to the mineral) for the period from 01 07 2017 to 31 12.2018. He also submitted that, in view of Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018, which is effective from 01.01 2019, the Applicant is liable to pay 5% GST on royalty paid to Government for mining of Iron ore for the period July, 2017 to December, 2018 and @18% during the period from 01 01 2019

The AAR of Rajasthan have also ruled that the mining lease service provide by Government of Rajasthan is classifiable under head 9973 and the said service attracts GST @ 18% (9% CGST and 9% SGST). The said ruling of AAR Rajasthan has also been upheld by the Appellate Authority on Advance Ruling Rajasthan vide their order No RAJ/AAAR/03/2019-20 dated 30 05.2019 AAR of Chhattisgarh, Haryana and Karnataka have also held that the rate of GST applicable for the period from 01 07.2017 to 31 12 2018 was the rate of GST applicable to the minerals AAR of Karnataka have also ruled that the rate of GST on the said service is 18% (9% CGST and 9% SGST) after 01 01 2019

Discussion & Finding:

5.0. We have considered the submission of the Applicant filed along with the application and also in the course of personal hearing. The Applicant has requested to pass an order holding that the Rate of GST, payable by them under Reverse Charge Mechanism, on royalty paid to Government for mining of iron ore for the period July, 2017 to December, 2018 would be 5 % i.e. rate of GST applicable on supply of iron ore. We find that, as per the understanding of the Applicant, the mining lease service availed by them should be classified under the head 99733. They have also accepted their liability to pay GST on Royalty paid to the State Government under Reverse Charge Mechanism. They have simply sought for a ruling on the rate of GST on royalty paid to Government during the period from 01.07.2017 to 31.12.2018.

5.1. We find that in terms of Section 95 "advance ruling" means a decision provided by the Authority or the Appellate Authority to an Applicant on matters or on questions specified in sub-section (2) of Section 97 or Sub-section (1) of section 100, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the Applicant. In terms of Section 97 (2) of CGST/OGST Act, the question on which the advance ruling can be sought under the said Act inter-alia includes classification of any goods or services or both, applicability of a notification issued under provisions of the Act and determination of the liability to pay tax on any goods or services or both. The broad objective for setting up of the AAR/AAAR is to provide certainty in tax liability in advance in relation to an activity being undertaken or proposed to be undertaken by the Applicant as well as to reduce litigation. The activity on which the Applicant sought an advance ruling is a continuous activity and pronouncing an order on such activity shall be within the jurisdiction of the "Authority".

5.2. The Central Government, on the recommendations of the GST Council, notified the rate of Central tax which shall be levied on the intra-state supply of services of description as specified in column (3) of the Table there to, falling under Chapter, Section or Heading of scheme of classification of services as specified in column (2) vide Notification No 11/2017-Central Tax (Rate) dated 28-06-2017. It has specifically been provided in point no '4' of the said notification, To Quote:-

4. Explanation.- For the purpose of this notification

(i) Goods includes capital goods.

(ii) Reference to "Chapter", "Section", or "Heading", wherever they occur, unless the context otherwise requires, shall mean respectively as "Chapter", "Section", or "Heading", in the annexed scheme of classification of services (Annexure) Unquote

5.3. The scheme of classification of service mentions chapter 99 with sections and Headings describing the services which are taxable at notified rates. The relevant portion of the scheme of classification of service of Heading 9973 is as under.

5.3.1 The Applicant has categorically stated in its application that they have been granted mining lease for extraction of iron ore in Odisha by the State Government on various terms and conditions as per the lease deed, inter alia on payment of Royalty to the State Government and sought a ruling on the rate of GST to be levied on such Royalty paid to the Government Admittedly, the Applicant has been awarded with a long term lease of the area specified in the lease agreement and has also been conferred the right to extract the minerals lying underneath for appropriation The right so conferred is not limited to using the minerals over the lease period but rather to appropriate the minerals extracted during the lease period Of course, extraction of minerals and removal thereof from the mines head is subjected to certain mining regulations In spite of that, the Government, as grantor of the right does not continue to enjoy title over the minerals extracted by the lessee Rather the lessee enjoy the title over the minerals extracted from the lease hold area and accordingly appropriates the property in the minerals by way of sale or otherwise. Thus, in the case of mining lease service granted by Government in favour of any licensee including the Applicant, on payment of royalty as applicable, there is transfer of right to exploit the minerals lying under the lease hold area and to appropriate the exploit. On examining the aforesaid nature of the service being received by the Applicant vis-a-vis classification of service, we are of the same view as have been taken by the Advance Ruling Authorities of the other States relied upon by the Applicant and have no hesitation to rule that the impugned service received by the Applicant from the State Government merits classification under the head 997337 in the category of service description "Licensing services for the right to use minerals including its exploration and evaluation". On the other hand, we do not agree with the ruling issued by the AAR Haryana and AAR Chhattisgarh that the rate of GST on such services shall be the rate of GST applicable to the supply of minerals i.e. iron ore in this case in terms of the residual entry in Entry Serial No. 17 of the rate Notification No 11/2017 dated 28 06 2017 for the simple reason that there is no underlying goods in this case In this regard, we examine each of the Advance Rulings including the order passed by the Appellate Authority of Advance Ruling of the State of Rajasthan upholding the order passed by the AAR Rajasthan in the case of Aravali Polyart Private Limited [RAJ/AAAR/03/2019-20 dated 30 05.2019] We found that the AAR of Haryana and Chhattisgarh have issued express ruling holding that the rate of GST payable on mining lease service shall be rate applicable to the minerals i.e 5%. The AAR of Karnataka while issuing the ruling have held that the rate of GST applicable to mining lease service shall be the rate of tax applicable to the mineral i.e 5% up to 31 12 2018 and taxable at the rate of 18% (9% CGST and 9% SGST) The ruling issued by the AAR Rajasthan on the applicable rate of GST was different. They have ruled that the applicable rate of GST is 18% and that has been upheld by the Appellate Authority of Advance Ruling The said Appellate Authority upheld the ruling of AAR after thoroughly examining the recommendation of the 31st GST Council which paved the way for amendment of Entry SI No. 17 splitting clause (viii) and creating a new clause i.e. (viia) to prescribe the rate of GST applicable to leasing or renting of goods at the same rate applicable to supply of the underlying goods and further prescribing 18% GST for the residual services. They have examined the discussion points for the aforesaid amendment of Entry SI No. 17 of Notification No. 11/2017 dated 28 06.2017 and held that the amendment was merely clarificatory and not for enhancement of rate. We found the views taken by the Appellate Authority of Rajasthan quite logical and convincing. On the other hand, the rulings issued by the AAR of Haryana, Chhattisgarh and Karnataka in relation to the rate of GST applicable to mining lease services during the period from 01.07. 2017 to 31 12.2018 is devoid of any logic in as much as mining lease is not the same as lease of minerals for which the rate of GST applicable to minerals cannot be imported and applied for determining the rate of GST on mining services. The AAR of Madhya Pradesh did not issue ruling on the rate of tax applicable to mining lease.

The ruling issued by them is on the classification of the service and that GST is also payable on the contributions made to DMF and NMET which is not before us for decision.

5.3.2. For determining the applicable rate of GST on the supply of aforesaid service, we examined Entry SI No 17 the Notification No 11/2017-Central Tax (Rate) dated 28-06-2017 and find that the said entry SI. No '17' notifies rate of CGST for the service Heading 9973 (Leasing or rental services with or without operator). The relevant entry of the notification is reproduced below for easy reference.

5.3.3. The Central Government, on the recommendations of the Council made inter-alia the following amendments in the notification No 11/2017 - Central Tax (Rate), dated the 28-06-2017 vide notification no. 31/2017-Central Tax (Rate) dated 13.10.2017.

(g) against serial number 17, for item (vi) in column (3) and the entries relating thereto in columns (3), (4) and (5), the following shall be substituted, namely:-

5.3.3.1. Further, the Central Government, on the recommendations of the Council made inter-alia the following amendments in the notification No. 11/2017 - Central Tax (Rate), dated the 28-06-2017 vide notification no 01/2018, dated 25. 01. 2018

(e) against serial number 17, for item (vii) in column (3), and the entries relating thereto in columns (3), (4) and (5), the following shall be substituted, namely:-

5.3.3.2 Furthermore, the Central Government, on the recommendations of the Council made inter-alia the following amendments in the notification No. 11/2017 -Central Tax (Rate), dated the 28-06-2017 vide notification no 27/2018-Central Tax (Rate) dated 31 12.2018

"(e) against serial number 17, for item (viii) in column (3) and the entries relating thereto in columns (3), (4) and (5), the following shall be substituted, namely:-

5.3.3.3. We find that the Applicant in its application has relied upon the notified rate against SI.No. 17 of item (vi), as it stood prior to its amendment, for the entire period 01.07.2017 to 31.12.2018. Since, the service received by the Applicant is not at all leasing of goods but rather "leasing services for the right to use minerals including its exploration and evaluation", the transaction is appropriately covered under the residual entry of SI.No. '17' of the aforesaid notification. The aforesaid description of service received by the Applicant has subsequently been classified against item no. 'vii' [From 13.10.2017 to 24.01.2018] and item no 'viii' from 25.01.2018 onwards. The rate prescribed in the relevant notification against aforesaid item is 'same rate of central tax as applicable on supply of like goods involving transfer of title in goods' till 31.12.2018 and 9 % thereafter. We also find that the GST rate so prescribed at Si.No. 17(vi) or at clause (vii) or (viii) after amendment is not implementable due to the absence of any underlying goods.

5.3.3.4. On examining the Notification no. 27/2018-Central Tax (Rate) dated 31.12.2018 which has been issued on the recommendations of the GST Council to further amend the Notification no. 11/2017-Central Tax (Rate) dated 28.06.2017, we find that the same has been issued consequent upon decisions of the 31st GST Council meeting held on 22. 12. 2018. In this connection, for proper understanding of the issue, we have gone through the Agenda for 31st GST Council Meeting. proposals recommended by Fitment Committee and Minutes of the Meeting of the Council available in GST council website. Si.No '18' of Annexure - II of Agenda item 6 , which is relevant to the issue, is reproduced below.

We have also gone through the minutes of the 31s1 GST Council Meeting held on 22nd December, 2018, where in, against the aforesaid proposal, it has been minuted as follows

"Annexure - II

14 41. The Council agreed to the proposals contained in S.Nos. 1 to 19 of Annexure II, recommended by Fitment Committee in its meeting of 14th and 15th December, 2018."

5.3.3.5. From the aforementioned proposal, it may be appreciated that amendment of Entry SI No. 17 (viii) was approved merely to clarify the GST rate applicable to the right to use Intellectual Property and similar products other than I PR which are covered under Group 99733. There was no such proposal either to enhance or reduce the rate of tax As is discussed in earlier Para 5 3 1, the impugned service received by the Applicant is appropriately covered under description Licensing services for the right to use minerals including its exploration and evaluation' which is classifiable under SAC 997337 under Group 99733 But, as per discussion in point no 1 ¦ no rate has been prescribed for transfer of intellectual property and similar products other than IPR and in discussion Point No 2 it has also been made clear that GST rale "Same rate of Central Tax as on supply of like goods involving transfer of title in goods" does not apply to transfer of intellectual property and similar products other than IPR, since the intellectual property does not have underlying goods

5.3.3.6. The underlying principle behind the above referred agenda item is transfer of intellectual property and similar products other than IPR is not like lease and rental of goods in which case, title over the goods always remains with the lessor and the lessee merely enjoys the right to use the goods during the lease period Thus, the rate of GST applicable on lease of goods may have been prescribed as the rate of GST applicable to supply of like goods involving transfer of title over the goods, but the rate of GST prescribed for lease of goods can't be made applicable for leasing of mining area conferring the right to extract and appropriate the minerals The lease by Government not being a lease of any goods, the conditional rate of tax applicable to sale of like goods cannot be imported for prescribing the rate of GST applicable to leasing of mining area

5.3.3.7. On a conjoint reading of the notification no 27/2018-Central Tax (Rate) dated 31 12.2018, Minutes/Agenda/Proposal/Discussion of the GST council, we are of the view that amendments have been carried out vide the aforesaid notification to clarify the legislative intent as well as to resolve the unintended interpretations It is well settled that the legislative intent cannot be defeated by adopting interpretations which is clearly against such interpretations

6.0. In this connection, we have also gone through and rely on the decision of the Hon'ble Supreme Court of India in the case of Collector of Central Excise, Shillong Versus Wood Craft Products Ltd (1995(77) E.L.T 23 (S C)], where in a '3' judges Bench of the Hon'ble Court while interpreting amendments in Central Excise Tariff have observed in Para '19' as follows To quote:

"In our opinion, the expression "similar laminated wood" in Heading No. 44.08 as it stood form the beginning must be construed to include within it block boards of all kinds so that the amendment in chapter Note 5 w.e.f. 19-3-19990 and thereafter w.e.f. 1-3-1992 merely clarified and made explicit that which was implicit in the heading throughout. These amendments were obviously made to end the dispute raised by the manufactures by an express statement."

Un-quote

We are of the view that the ratio of the aforesaid case is squarely applicable to the instant case as well.

7.0. We are also inclined to rely on the decision of the Hon'ble Supreme C India in the case of W.P.I.L Ltd. Versus Commissioner of Central Excise, Meerut, U P [2005 (181) E.L.T. 359 (S.C)] which is also applicable to the present case, where in a *3' Judges Bench of the Hon'ble Supreme Court while interpreting applicability of exemption notifications have observed in Para 15 and 16 as follows. To Quote:-

"15. The learned counsel for the appellant is also right in relying upon a decision of this Court in Collector of Central Excise. Shillong V. Wood Craft Products ltd., ((1995)3 SCC 454]. In that case, this Court held that a clarificatory notification would take effect retrospectively Such a notification merely clarified the position and makes explicit what was implicit. Clarificatory notifications have been issued to end the dispute between the parties.

16. In view of the consistent policy of the Government of exempting parts of power driven pumps utilized by the factory within the factory premises, it could not be said that while issuing Notification No 46/94 of March 1, 1994, the exemption in respect of said item which was operative was either withdrawn or revoked. The action was taken only with a view to rescinding several notifications and by issuing a composite notification. The policy remained it was and in view of demand being made by the Department, a representation was made by the industries and on being satisfied the Central Government issued a clarificatory Notification No. 95/94 on April 25, 1994. It was not a new notification granting exemption for the first time in respect of parts of power driven pumps to be used in the factory for manufacture of pumps but clarified the position and made the position explicit which was implicit"

Unquote

8.0. We are also inclined to rely on the decision of the Hon'ble Supreme Court of India in the case of Raison (India) Ltd Versus Commissioner of Central Excise, Chandigarh - I [2015 (319) E L.T 234 (S C)), where-in '2' Judges Bench of the Hon'ble Supreme Court while interpreting applicability of exemption notifications have held as follows,-

"In view of consistent policy of Government of granting exemption to compounded rubber, withdrawal of exemption by Notification No. 64/94-C E.., dated 1-3-1994 was inadvertent error - Government realizing this mistake had reintroduced exemption, which has to be treated as corrective/clarificatory, having retrospective effect.

9.0. The Applicant has referred to Advance Ruling in the case of M/s Pioneer Partners, wherein the Haryana Authority for Advance Ruling held that "The services for the right to use minerals including its exploration and evaluation, as per Sr. No 257 of the annexure appended to Notfn No 11/2017-CT (Rate) dtd.28 06.2017 is included in group 99733 under heading 9973. Hence it attracts the same rate of tax as on supply of the like goods involving transfer of title in goods. The Applicant has also referred to Advance Ruling in the case of M/s NMDC limited, wherein the Chhattisgarh Authority for Advance Ruling held that "The royalty paid by M/s NMDC in respect of mining lease is classifiable under sub heading 997337; 'Licensing services for the right to use minerals including its exploration and evaluation covered under entry no 17 of Notfn No 11/2017(Rate) dtd.28.06 2017 attracting GST at the rate as applicable for the supply of like goods involving transfer of title in goods, under reverse charge basis.

9.1. We are not inclined to follow the aforesaid rulings of AAR, since they have passed their rulings without properly appreciating the consequences of amendments made vide notification no 27/2018-Central Tax (Rate) dated 31.12.2018. The said rulings were passed without taking into cognizance, proposal and decision of GST council, consequent upon which the said notification was issued. Therefore, we are of the firm view that the interpretation which defeats the intention of the legislature should be avoided.

10.0. Accordingly, we pass the following order.

ORDER

In view of our aforementioned findings, we hereby order that licensing services for the right to use minerals including its exploration and evaluation received by the Applicant is taxable @ 18 % [9 % CGST and 9 % OGST] during 07/2017 to 12/2018. Thus, the reference from the Odisha Authority for Advance Ruling stands disposed of accordingly.