The appellant M/s. Raj Quarry Works is carrying out mining activity on a plot of land leased from the Government of Gujarat and quarrying “Black Trap” used for concrete mixing and sells it to customers. The appellant has entered into Quarrying lease / license agreement for 10 years for “Black Trap” material with the Government of Gujarat. The lease was granted by the Collector of Panchamahal in pursuance to lease agreement signed between the appellant and the Government of Gujarat. As per the lease agreement, the appellant is required to pay rent of ₹ 2,62,147/- per year or Royalty @ ₹ 250/- per Metric Ton, whichever is higher to the Government of Gujarat.

2. The appellant raised the following questions for advance ruling before the Gujarat Authority for Advance Ruling (herein after referred to as the ‘GAAR’) :-

(i) What is the classification of service provided in accordance with Notification No. 11/2017-CT (Rate) dated 28.06.2017 read with annexure attached to it, issued by the State Government to M/s Raj Quarry Works, for which royalty is being paid. Whether said service can be classified under Tariff Heading 9973, specifically under 997337 as Licensing services for the right to use minerals including its exploration and evaluation or as any other service?

(ii) What is rate of GST on given services provided by State of Gujarat to M/s Raj Quarry Works for which Royalty is being paid?

(iii) Whether services provided by the State Government is governed by applicability of Notification No. 13/2017-CT(Rate), dated 28.06.2017 under entry number 5 and whether M/s Raj Quarry Works is taxable person in this case to discharge GST under reverse charge mechanism or whether given service is covered by exclusion clause number (1) of entry no 5 and State Government is liable to discharge GST on same?

3.1 The GAAR has inter-alia observed that the leasing of the Government land to the appellant is considered as supply of service as per sub-section (1) of section 7 of the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017 (herein after referred to as the “CGST Act, 2017” and the “GGST Act, 2017” respectively and as the “GST Acts” collectively). It has further been observed by the GAAR that leasing of the Government land to the appellant to carry out the activity of the quarrying is a supply of service in view of clause (a) of Schedule II of the GST Acts. The GAAR has also referred to the Annexure to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, prescribing Service Accounting Codes for services and observed that the nature of service received by the appellant is covered under the Service Accounting Code 9973 37 – ‘Licensing services for the right to use minerals including its exploration and evaluation’.

3.2 The GAAR has thereafter referred to entries at Sl. No. 17 and 35 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended from time to time and has held that the service ‘Licensing services for the right to use minerals including its exploration and evaluation’ would be covered under residual entry No. (viii) of Sl. No. 17 of Notification No. 11/2017-Central Tax (Rate) and would attract GST rate of 18% (9% CGST + 9% SGST) from the period July, 2017 onwards.

3.3 The GAAR has referred to Sl. No. 5 of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 and held that the exclusion entry (1) thereof is regarding “renting of immovable property”, whereas the appellant has taken a mine on lease for quarrying minerals from the Government of Gujarat, which is not a service of “renting of immovable property”, therefore the transaction does not fall under exclusion entry (1) of Sl. No. 5 of Notification No. 13/2017-Central Tax (Rate). It has further been held by the GAAR that the services in this case are supplied by the State Government to the appellant, which is a business entity, therefore, the appellant is required to pay tax on the said supply under reverse charge mechanism as per Notification No. 13/2017-Central Tax (Rate).

4. In view of the foregoing, the GAAR vide Advance Ruling No. GUJ/GAAR/R/2020/09 dated 19.05.2020, has ruled as follows –

(i) What is the classification of service provided in accordance with Notification 11/2017-CT (Rate) dated 28.06.2017 read with annexure attached to it, issued by the State Government to M/s Raj Quarry Works, for which royalty is being paid. Whether said service can be classified under Tariff Heading 9973, specifically under 997337 as Licensing services for the right to use minerals including its exploration and evaluation or as any other service?

Ans. The activity undertaken by the applicant is 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) sub-heading 997337 of Notification Number 11/2017-C.T. (Rate), dated 28-6-2017

(ii) What is rate of GST on given services provided by State of Gujarat to M/s Raj Quarry Works for which Royalty is being paid?

Ans. The activity undertaken by the applicant attracts 18% GST (9% CGST+ 9% SGST).

(iii) Whether services provided by the State Government is governed by applicability of Notification No 13/2017-CT(Rate), dated 28.06.2017 under entry number 5 and whether M/s Raj Quarry Works is taxable person in this case to discharge GST under reverse charge mechanism or whether given service is covered by exclusion clause number (1) of entry no 5 and State Government is liable to discharge GST on same?

Ans. The applicant is not covered under exclusion clause 1 of Sr. No. 5 of the Notification. Therefore, applicant is liable to discharge tax liability under reverse charge mechanism vide Notification No. 13/2017-C.T. (Rate), dated 28-6-2017 (as amended from time to time) of the CGST Act, 2017.

5. Aggrieved by the aforesaid ruling, the appellant has filed the present appeal.

6.1 The appellant has submitted that the GAAR has accepted its views regarding classification of taxable event – ‘Licensing service (by the Government of Gujarat) for the right to use minerals including its exploration & evaluation from the lease of land and accepted that the said activity is covered within Service Accounting Code (SAC) 997337. Therefore, if all the other sub-entries [sub-entries (i) to (v)] of Sl. No. 17 of Notification No. 11/2017-Central Tax (Rate) are not applicable in the instant case, then the residuary sub-entry (vi) of the said Sl. No. 17, which is a specific entry for the taxable event, should have been applied in the appellant’s case. In spite of that, the GAAR has tried to change the track for applying higher tax rate by raising the issue of taxable rate as per Sl. No. 35 of the said Notification, which is general entry for services that cannot be applied as there is a specific entry for the taxable event and it provides for residual services too. The appellant has placed reliance on the judgement of Hon’ble Supreme Court in the case of Commercial Taxes Officer Vs. Jalani Enterprises, in this regard.

6.2 The appellant has submitted that at Sl. No. 17 of Notification No. 11/2017-Central Tax (Rate), there was a residual entry no. (vi) covering ‘leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv) and (v) above’ having tax rate as ‘same rate of central tax as applicable of like goods involving transfer of title in goods’. With the insertion of entry (vi) relating to ‘leasing of motor vehicles purchased and leased prior to 1st July, 2017’, in the said Sl. No. 17, vide Notification No. 31/2017-Central Tax (Rate), the said residual entry No. (vi) was renumbered as entry no. (vii). Similarly, with the insertion of entry no. (vii) relating to ‘time charter of vessels for transport of goods’ in the said Sl. No. 17, vide Notification No. 1/2018-Central Tax (Rate), the said residual entry No. (vii) was renumbered as entry No. (viii). The appellant has further submitted that an entry (viia) relating to ‘leasing or renting of goods’ was inserted in the said Sl. No. 17 vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018 (effective from 01.01.2019) and the rate of tax for the residuary entry (viii) has been prescribed as 9% (9% CGST + 9% SGST). It is the submission of the appellant that prior to issuance of Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018, the rate of tax prescribed for the residuary entry [at Sl. No. 17 of Notification No. 11/2017-Central Tax (Rate)] was ‘the rate of central tax as applicable on supply of like goods involving transfer of title in goods’.

6.3 The appellant has further submitted that it cannot be said that service in question in instant case viz. ‘licensing service (by the Government of Gujarat) for the right to use minerals including its exploration & evaluation from the lease of land is covered within the services covered in entry at Sl. No. 35 of Notification No. 11/2017-Central Tax (Rate). The appellant has submitted that Entry at Sl. No. 17 – Heading 9973 (leasing or rental services, with or without operator) is the specific entry heading for the instant case and its residuary entry (viii) [which was entry (vi) in Sl. No. 17 of Notification No. 11/2017-Central Tax (Rate)] is to be applied for the tax rate.

6.4 As regards the observations of the GAAR that “the GST rate so prescribed at Sl. No. 17(vi) or at clause (vii) or (viii) after amendment is not implementable due to absence of any underlying goods”, the appellant has submitted that Chapter Heading itself of Sl. No. 17 of Notification No. 11/2017-Central Tax (Rate) is ‘Leasing or Rental Services, with or without operator’, therefore, from the inception, this entry prescribes rate of tax for services. Further, the said observations of the GAAR are complete misinterpretation of the intention behind the entry. The appellant has submitted that the interpretation of said tax rate in the instant case ought to be rate of tax for goods for which licensing services for the right to use minerals, including its exploration and evaluation is provided by the Government. It is the further submission that in the appellant’s case, the mineral is ‘Black Trap’ which is to be taxed @ 2.5% CGST + 2.5% SGST. Therefore, till the Notification No. 27/2018-Central Tax (Rate) changed the rate of tax (9% CGST + 9% SGST), the applicable rate of tax which needed to be held was as per residual entry of Sl. No. 17 of Notification No. 11/2017-Central Tax (Rate), as amended vide Notification No. 31/2017-Central Tax (Rate) and 1/2018-Central Tax (Rate), which was ‘same rate of tax applicable on supply of like goods involving transfer of title in goods’. As such, the rate of tax for ‘licensing services for the right to use minerals, including its exploration and evaluation, provided by the Government’, on reverse charge mechanism basis should have been @ 2.5% CGST + 2.5% SGST.

6.5 The appellant has further submitted that it appears that the GAAR is carrying misconception of matching rate of tax to the activity, whereas it has to match activity / service to the entry / sub entry and the rate of tax prescribed for the same is attracted automatically to the said activity / service.

6.6. The appellant has also submitted that though the GAAR has tried to consider the intention behind the amendment in Sl. No. 17 by Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018, but the said intention of prescribing the rate of tax for transfer of intellectual property and similar products other than IPR is not put to word in the actual Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018.

6.7 As regards the reliance placed by the GAAR on the judgment of the Hon’ble Supreme Court in the case of WPIL Ltd. Vs. Commissioner of Central Excise, Meerut [2005 (181) ELT 359 (SC)], the appellant has submitted that all the three Notifications viz. Notification No. 31/2017-Central Tax (Rate), 1/2018-Central Tax (Rate) and 27/2018-Central Tax (Rate), are amending Notifications and not of clarificatory nature. It has been submitted that by virtue of these amending Notifications, new entries have been added to the existing notification. The appellant has relied upon the judgement of the Hon’ble Supreme Court in the case of MRF Ltd. Vs. Assistant Commissioner, Sales Tax [(2007) Taxman.com 1755 SC] and submitted that as held by the Hon’ble Supreme Court in the said judgement, unless it is expressly stated, amendment cannot be retrospective, but can only be prospective.

6.8 The appellant has requested (i) to quash and set aside advance ruling issued by the GAAR; (ii) to hold that the appellant’s taxable receipt of service is covered within sub-entry (viii) of Sl. No. 17 of Notification No. 1/2017-Central Tax (Rate) as amended vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018 and the same is taxable @ 18% (9% CGST + 9% SGST) with effect from 01.01.2019; and (iii) to hold that prior to 01.01.2019, the appellant’s taxable receipt of service is covered within residual sub-entry (vi) or (vii) or (viii) (as renumbered from time to time) of Sl. No. 17 of Notification No. 1/2017-Central Tax (Rate) and the applicable rate of tax would be as mentioned against the said residual sub-entry i.e. the rate of Central Tax as applicable on supply of like goods involving transfer of title in goods, which is 5% (2.5% CGST + 2.5% SGST) for ‘Black Trap’ mining in this case till 31.12.2018.

7. The appellant, vide letter dated 27.07.2020 relied upon the Advance Ruling dated 29.05.2020 issued by the Uttarakhand Authority for Advance Ruling in case of Uttarakhand Forest Development Corporation.

FINDINGS :-

8. There has been change in one of the two Members of this authority consequent upon the transfer and posting of the Chief Commissioner, Central Goods and Services Tax, Ahmedabad Zone after Personal Hearing has been held in this case. However, the appellant has specifically requested vide letter dated 02.12.2020 to decide the matter on the basis of available record and their representation in hearing through video conferencing on 13.10.2020.

9. We have considered the submissions made by the appellant in the appeal filed by them, further written submission as well as submissions at the time of personal hearing and Ruling given by the GAAR.

10. The appellant has requested to decide the rate of Goods and Services Tax applicable on the taxable service. However, as the rate of Goods and Services Tax is intrinsically linked to the classification of service, we may be required to examine the aspect of classification of service in the present case as well. Therefore, the main issues involved in this case are the proper classification / Service Code of the service involved and the applicable rate of Goods and Services Tax on the said service.

Classification of Service

11. As per the facts narrated by the appellant, the Government of Gujarat, acting through the Collector of Panchamahal, has entered into lease / license agreement for 10 years whereby the appellant is entitled to carry out mining activity on a plot of land for quarrying “Black Trap”. As per the agreement, the appellant is required to pay ₹ 2,62,147/- per year or Royalty @ ₹ 250 per Metric Ton, whichever is higher to the Government of Gujarat.

12. In Notification No. 11/2017-Central Tax (Rate), it has been explained at clause (ii) of Para 4 that ‘reference to “Chapter”, “Section” or “Heading”, wherever they occur, unless the context otherwise requires, shall mean respectively as “Chapter”, “Section” and “Heading” in the annexed scheme of classification of services. The Annexure attached to the said Notification describes the “Scheme of Classification of Services”. It is also pertinent to note that the “Scheme of Classification of Services” adopted for the purpose of Goods and Services Tax is in accordance with the United Nation’s Central Product Classification (UNCPC) and Explanatory Notes.

13.1 In the “Scheme of Classification of Services”, Heading 9973 covers “Leasing or rental services with or without operator”. This Heading 9973 covers the following Groups –

13.2 The aforesaid description of services covered under Heading 9973 and Groups 99731, 99732 and 99733 indicates that the said Heading 9973 primarily covers leasing or renting services where the underlying supply is mainly of goods.

13.3 It also needs to be noted at this stage that Service Code (Tariff) 997337 covers ‘Licensing services for the right to use minerals including its exploration and evaluation’. As per the Explanatory Notes to the ‘Scheme of Classification of Services’ published by the Government, Service Code (Tariff) 997337 includes ‘licensing services for the right to use, mineral exploration and evaluation information, such as mineral exploration for petroleum, natural gas and non-petroleum deposits’.

14.1 We also observe that in the “Scheme of Classification of Services”, Heading 9991 covers “Public administration and other services provided to the community as a whole; compulsory social security services”. This Heading 9991 inter-alia covers Group 99911 for “Administrative services of the Government”. Further, the said Group 99911 covers the following Service Codes (Tariff).

14.2 As per the Explanatory Notes to the ‘Scheme of Classification of Services’ published by the Government, Service Code (Tariff) 999113 inter-alia includes following –

“This service code includes :

i. to vi xxx xxx

vii. administrative services provided by government offices, bureaux and programme units concerning discovery, exploitation, conservation, marketing and other aspects of mineral production, including the development and monitoring of regulations concerning prospecting; mining and safety standards; activities designed to develop, expand and improve the position of manufacturing establishments; development and administration of regulations concerning building standards and issuing of occupation certificates; development and monitoring of regulations concerning safety on construction sites

viii. to xxvii xxx xxx xxx

15.1 It is evident from the ‘Scheme of Classification of Services’, as discussed hereinabove that the Service Code (Tariff) 997337 includes ‘licensing services for the right to use, mineral exploration and evaluation information, such as mineral exploration for petroleum, natural gas and non-petroleum deposits’ whereas Service Code (Tariff) 999113 includes ‘administrative services provided by government offices, bureau and programme units concerning discovery, exploitation, conservation, marketing and other aspects of mineral production, including the development and monitoring of regulations concerning prospecting.

15.2 At first blush, it would appear that the services received by the appellant from the Government of Gujarat, whereby the appellant is required to pay to the Government of Gujarat Royalty of ₹ 2,62,147/- per year or @ ₹ 250/- per Metric Ton of ‘Black Trap’ mined, whichever is higher, may equally merit classification under Service Code 997337 and Service Code 999113. However, on closer analysis, it is evident that the Service Code 999113 specifically covers the ‘discovery, exploitation, conservation, marketing and other aspects of mineral production etc.’, as against the Service Code 997337 which covers ‘licensing services for the right to use, mineral exploration and evaluation information, such as mineral exploration for petroleum, natural gas and non-petroleum deposits’. The ‘exploitation of mineral’ is specifically mentioned in Service Code 999113 whereas the Service Code 997337 does not specifically cover the said activity. The activities of mineral exploration and evaluation mentioned in Service Code 997337 are performed prior to actual extraction / mining of minerals and the expression ‘right to use’ mentioned therein does not specifically refer to extraction of minerals. Thus, the extraction of minerals i.e. Black Trap, is specifically covered under Service Code 999113.

15.3 Furthermore, the service involved in this case is the service received by the appellant from the Government of Gujarat, whereby the appellant is required to pay Royalty to the Government of Gujarat by calculating an amount per Metric Ton of ‘Black Trap’ mined or a fixed amount per year, whichever is higher. Group 99911 of the ‘Scheme of Classification of Services’ specifically covers the “Administrative services of the Government” which is further sub-categorized under Service Code 999113 as “Public administrative services related to the more efficient operation of business”. As against it, the Group 99733 covers “Licensing services for the right to use intellectual property and similar products” which is further sub-categorized to include licensing services for right to use several intangible properties e.g. right to use computer software, right to broadcast and show original films, sound recording, radio and television programme, right to reproduce original art works, right to reprint and copy manuscript, books, journals and periodicals, right to use research and development products, right to use trademarks and franchises, right to use minerals including its exploration and evaluation, right to use other natural resources including telecommunication spectrum and right to use intellectual property products etc. Looking from this angle also, the services received by the appellant from the Government of Gujarat, whereby the appellant is required to pay Royalty to the Government of Gujarat by calculating an amount per Metric Ton of ‘Black Trap’ mined or a fixed amount per year, whichever is higher, also merit classification under “Administrative services of the Government” (Group 99911) and more specifically as “Public administrative services related to the more efficient operation of business” (Service Code 999113), as against the Group covering “Licensing services for the right to use intellectual property and similar products” (Group 99733) inasmuch as permitting the appellant by the Government of Gujarat to extract the mineral (Black Trap) subject to certain conditions and on payment of Royalty is definitely a part of ‘administrative services of the Government’ and more specifically ‘public administrative service related to the more efficient operation of business. Therefore, in our considered view, the service involved in the present case merit classification under Service Code 999113 as “Public administrative services related to the more efficient operation of business”.

16.1 An issue may arise whether the ‘Explanatory Notes to the Scheme of Classification of Services’ can be referred and relied for classification of service under “Scheme of Classification of Services” attached to the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended.

16.2 In this regard, we observe that the Hon’ble Supreme Court in the case of L.M.L. Ltd. Vs. Commissioner of Customs [Civil Appeal No. 3764 of 2003, decided on 21.09.2010 reported at 2010 (258) ELT 321 (S.C.)] has held as follows:-

“12. In Collector of Central Excise, Shillong v. Wood Crafts Products Ltd. reported in (1995) 3 SCC 454, it was held by this Court that as expressly stated in the statements of objects and reasons of the Central Excise Tariff Act, 1985, the Central Excise Tariffs are based on the Harmonious System of Nomenclature (HSN) and the internationally accepted nomenclature was taken into account to reduce disputes on account of tariff classification. Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the Harmonious System of Nomenclature (HSN). Although, the decision in the case of Woodcraft Products (supra) dealt with the interpretation of the provisions of the Central Excise Tariff there can be no doubt that the HSN Explanatory Notes are a dependable guide even while interpreting the Customs Tariff.”

16.3 Though the aforesaid judgement of the Hon’ble Supreme Court is in respect of reliance to be placed on the HSN Explanatory Notes while interpreting the Central Excise Tariff and the Customs Tariff, the ratio laid down therein is equally applicable for interpreting the “Scheme of Classification of Services” attached to the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 inasmuch as the said “Scheme of Classification of Services” adopted for the purpose of Goods and Services Tax is in accordance with the United Nation’s Central Product Classification (UNCPC) and Explanatory Notes.

Applicable Rate of Goods and Services Tax

17. “Public Administration and other services provided to the community as a whole; compulsory social security services” falling under Heading 9991 of the Scheme of Classification of Services” attracts Goods and Services Tax of 18% (CGST 9% + SGST 9% or IGST 18%) as per Sl. No. 29 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended. Therefore, service received by the appellant from the Government of Gujarat, whereby the appellant is required to pay Royalty to the Government of Gujarat by calculating an amount per Metric Ton of ‘Black Trap’ mined or a fixed amount per year, whichever is higher, is chargeable to 18% (CGST 9% + SGST 9%) Goods and Services Tax as per Sl. No. 29 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended.

18. As we have already concluded that the service involved in this case is classifiable under Service Code 999113 as “Public administrative services related to the more efficient operation of business”, we do not find it necessary to discuss various arguments put forth by the appellant in support of the contention that the said service is covered within residual sub-entry (vi) or (vii) or (viii) (as renumbered from time to time) of Sl. No. 17 of Notification No. 1/2017-Central Tax (Rate) pertaining to Heading 9973.

Liability to pay Goods and Services Tax

19. The GAAR has held that as per Sl. No. 5 of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017, in case of services supplied by the Central Government, State Government, Union Territory or local authority to a business entity, the liability to pay Goods and Services Tax shall be on the said business entity located in the taxable territory on reverse charge basis. Accordingly, the appellant is liable to pay Goods and Services Tax on aforesaid services received from the Government of Gujarat on reverse charge basis. The appellant has not challenged this decision of the GAAR in the present appeal.

20. In view of the foregoing, we modify the Advance Ruling No. GUJ/GAAR/R/2020/09 dated 19.05.2020 of the Gujarat Authority for Advance Ruling in the case of M/s. Raj Quarry Works and hold that –

(i) The service received by the appellant M/s. Raj Quarry Works from the Government of Gujarat, whereby the appellant is required to pay Royalty to the Government of Gujarat by calculating an amount per Metric Ton of ‘Black Trap’ mined or a fixed amount per year, whichever is higher, is classifiable under Service Code 999113 as “Public administrative services related to the more efficient operation of business”.

(ii) The service received by the appellant M/s. Raj Quarry Works from the Government of Gujarat, whereby the appellant is required to pay Royalty to the Government of Gujarat by calculating an amount per Metric Ton of ‘Black Trap’ mined or a fixed amount per year, whichever is higher, is chargeable to 18% (CGST 9% + SGST 9%) Goods and Services Tax as per Sl. No. 29 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended.

(iii) The appellant M/s. Raj Quarry Works is required to pay Goods and Services Tax as per Sl. No. 5 of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 on the aforesaid service received by the appellant from the Government of Gujarat, whereby the appellant is required to pay Royalty to the Government of Gujarat.