As per a ruling by the Haryana Authority for Advance Rulings, GST (Goods and Services Tax) will be applicable to the mining rights granted to miners and mining companies by the government at the same rate of 5% which is applicable to the supply of the material being mined. The Authority said that such rights permitted by the government would be treated as a service for the GST purpose and therefore are liable for the tax.
The ruling was passed in response to an application filed by a company engaged in mining and extraction of raw materials in the country. The applicant has recently secured a mining license under the state government and wanted clarity on tax liability on the royalty paid on account of acquiring the mining rights. The questions asked in the application included – whether the recipient of service is liable to pay the tax under the reverse charge mechanism in this case – and what would be the rate of tax, 5% as on supply of material or the higher rate of 18%.
The AAR’s decision in the matter should come as a relief for the mining sector as they will now be required to pay taxes at a fixed rate of 5% and not at 18%. Also, the confusion over the applicability and the rate of tax has been resolved now. The tax on the supply of mined raw materials is 5%.
As for the reverse charge liability of tax on services provided by the government, the Authority said that the applicant must pay GST on the rent or royalty paid against such services.
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In cases, where the products are outside the GST ambit or are used to provide products/services which are exempt from tax, the businesses have to bear the tax cost. Companies that have claimed such rights in the past and paid 18% GST on the royalty may look into the possibility of claiming the excess amount back if the tax amount has not already been claimed as ITC.
Siddharth Mehta, an indirect tax partner at PwC India, said, “This is one of the rare rulings in favour of industry and it would be interesting to see if the authorities would appeal against it or consider making changes in the rate schedule itself.”
