N.M.D.C. Vs Authority For Advance Ruling

The writ petition at hand pertains to the order issued on 21.09.2020 by the Karnataka Appellate Authority for Advance Ruling (AAAR), under Section 97 of the Central Goods and Services Tax Act, 2017 (CGST Act).

The petitioner, M/s. N.M.D.C. Ltd., a government-controlled company established in 1958, operates a unit in Donimalai Township, Sandur, Ballari District, Karnataka, with a GSTIN number of 29AAACN7325A1ZR. Since its inception, the company has been engaged in mineral exploration, including iron ore, copper, limestone, dolomite, and operates a pellet plant adjacent to the Donimalai Iron Ore in Karnataka. As per the Mines and Minerals (Development & Regulation) Act, 1957 (MMDR Act), the petitioner is obligated to pay royalties under Section 9(1).

Section 97 of the CGST Act, 2017 enables individuals to seek clarification from the Authority for Advance Ruling (AAR) through an application. This application can address whether specific actions related to goods or services amount to supply within the meaning of the term, including aspects such as tax rates and valuation.

In essence, the petition revolves around seeking clarity on the tax implications of the petitioner’s activities, particularly regarding the interpretation of supply under the CGST Act.

The writ petition under consideration stems from a decision made on September 21, 2020, by the Karnataka Appellate Authority for Advance Ruling (AAAR), as delineated in Order No.KAR/AAAR-03/2020-21, established pursuant to Section 97 of the Central Goods and Services Tax Act, 2017 (CGST Act).

The petitioner, M/s.N.M.D.C. Ltd., established in 1958 and under the ownership and control of the Government of India, operates a unit in Donimalai Township, Donimalai, Sandur, Ballari District, with a GSTIN number of 29AAACN7325A1ZR. Since its inception, the petitioner has been engaged in the exploration of various minerals, including iron ore, copper, limestone, dolomite, and owns a pellet plant adjacent to the Donimalai Iron Ore in Karnataka. As per Section 9(1) of the Mines and Minerals (Development & Regulation) Act, 1957 (MMDR Act), the petitioner is obligated to pay royalty.

Section 97 of the CGST Act, 2017 empowers individuals to seek an Advance Ruling (AAR) from the Authority by submitting an application to determine whether certain actions regarding goods or services amount to or result in the supply of goods or services, including aspects such as tax rates and valuation. The AAR, in its order dated September 21, 2019, concluded:

The royalty paid concerning a Mining Lease constitutes a component of the consideration for Licensing services for the right to use minerals, including exploration and evaluation, falling under Head 9973. This is taxable at the applicable rate on the supply of similar goods involving the transfer of title in goods until December 31, 2018, and taxable at 9% CGST and 9% SGST from January 1, 2019, onwards, under the residual entries of Serial No.17 of Notification No.11/2017- Central Tax dated June 28, 2017.

The writ petition in question arises from an order dated 21.09.2020 issued by the Karnataka Appellate Authority for Advance Ruling (AAAR) under Section 97 of the Central Goods and Services Tax Act, 2017 (CGST Act).

M/s.N.M.D.C. Ltd., the petitioner, is a government-controlled company incorporated in 1958, engaged in mineral exploration, including iron ore, copper, limestone, and dolomite. One of its units is situated in Donimalai Township, Sandur, Ballari District, Karnataka. The company operates a pellet plant adjacent to its iron ore mines in Donimalai. As per Section 9(1) of the Mines and Minerals (Development & Regulation) Act, 1957 (MMDR Act), the petitioner is obligated to pay royalty for the minerals extracted.

Section 97 of the CGST Act allows individuals to seek an Advance Ruling (AAR) to determine the tax implications of certain activities related to goods or services. In this case, the AAR was approached to ascertain the taxability of royalty payments made by the petitioner. The AAR, in its order dated 21.09.2019, concluded that:

1. Royalty paid for mining leases constitutes consideration for licensing services, taxable under Head 9973, subject to the applicable tax rates.
2. Statutory contributions made under the MMDR Act, such as to the District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET), are also part of the consideration for licensing services.
3. The supply of licensing services for the right to use minerals, including exploration and evaluation, includes royalty, DMF, and NMET contributions.
4. Tax liability for services provided by the government to businesses located in taxable territories falls on the recipient under reverse charge mechanism.

The petitioner challenges this ruling in the writ petition. The crux of their argument likely revolves around the interpretation of the CGST Act and the applicability of tax rates to royalty payments and statutory contributions. The outcome of this petition will have implications for the taxation of similar transactions in the mining industry.