DMF, NMET Contributions Form Part Of Mining Royalty; GST Only On NMET: Telangana AAAR

The Telangana State Appellate Authority for Advance Ruling (AAAR) has held that statutory payments made to the District Mineral Foundation and the National Mineral Exploration Trust are not voluntary contributions.

It ruled that these payments are mandated amounts linked to mining royalty and made in the course and furtherance of business. GST, however, is payable only on NMET contributions and not on payments made to DMF.

A coram of Central Tax Member Sanjay Rathi and State Tax Member M. Raghunandan Rao delivered the ruling. The authority noted that both payments arise from mining operations under the Mines and Minerals (Development and Regulation) Act, 1957.

It held that GST exemption applies only to DMF in view of a 2023 CBIC clarification. “It is ruled that the contribution made towards DMF is not liable to GST. The clarification does not cover the contributions towards NMET. Therefore, the contribution towards NMET is liable to GST,” the authority said.

The appeal was filed by The Singareni Collieries Company Limited, a government-owned coal company. It operates coal mines in six districts of Telangana. The company pays royalty to the State Government for coal extraction. Under the MMDR Act, it is also required to pay 30% of the royalty amount to DMF and 2% to NMET.

Before the Authority for Advance Ruling, the company sought clarity on the GST classification of mining royalty. It also sought a ruling on the taxability of statutory contributions to DMF and NMET. The AAR held that royalty paid for mining leases falls under heading 997337. It attracts tax at 9% CGST and 9% SGST. The AAR further held that GST was payable on contributions made to both DMF and NMET.

In appeal, the company argued that payments to DMF and NMET were social welfare contributions. It contended that these payments did not amount to consideration for supply. The AAAR rejected this submission. It held that the payments were compulsory and directly linked to mining activity.

“In case of failure to contribute to the above, the rights of coal extraction would legally get hampered. This authority wishes to make it clear that donations are always contributory in nature without having any percentage fixed on it; however, since in this case the amounts to be paid towards the above account are fixed at a percentage of royalty amount, thus, the same cannot be considered as contribution but mandated payments,” the authority observed.

Relying on CBIC Circular No. 206/18/2023-GST dated October 31, 2023, the authority held that DMF trusts set up by state governments qualify as governmental authorities. Such payments are exempt from GST. It held that the clarification does not extend to NMET.

Accordingly, the AAAR partly allowed the appeal. It set aside the GST levy on DMF contributions. It upheld the levy of GST on NMET contributions.