24.02.2023: Supply of permits by the forest department for coal transit is taxable as ‘Public Administrative services’ at 18% GST: Telangana AAAR

The Telangana Appellate Authority of Advance Ruling (AAAR) in the case of M/s Singareni Colleries Company Ltd. Vide Order No. No. AAAR/14/2022 dated 30.12.2022, has ruled that the permit issued by the forest department for coal transit is taxable as public administrative services and GST is payable on forest permit fees on reverse charge mechanism.

In this case, the appellant is a government-owned coal mining company, and are mainly into the extraction of coal. The company is jointly owned by the governments of Telangana and India. They operate mines in the state of Telangana. They have coal mining projects in various places. Further, the appellant is entering into contracts with a host of vendors/suppliers for the extraction of coal. Under Rule 3 of the State Forest Product Transit Rules, they are liable to pay a certain amount to move the mined coal through the forest area as a permit fee at the rate of Rs. 10 per ton of coal transported.

The appellant sought an advance ruling on the issue of whether the applicant is obliged to pay GST on the forest permit fee paid by it under the reverse charge mechanism. Alternatively, if GST is payable on the forest permit fee paid by the applicant, can services received by the applicant be classifiable under heading 9973 of Notification No. 11/2017 Central Tax (Rate) dated June 28, 2017, and thus be eligible for a lower rate of tax for the period prior to January 1, 2019.

The Telangana AAR held that GST is payable on the forest permit fee on a reverse charge basis. The supply is to be classified as tolerating to do an act and is to be treated as a service as per entry 5(e) of Schedule II to the CGST Act, 2017.

The applicant aggrieved by the advance ruling, contended that notification no. 12/2017 exempts any service provided by the central government or state government in respect of functions entrusted to panchayats under Article 243G of the constitution for the period of July 26, 2018—July 26, 2018. The service provided by the state government, i.e., the forest department, is related to social forestry and farm forestry, which are mentioned at entry no. 6 of the eleventh schedule of the constitution, hence they are eligible for exemption till July 26, 2018.

The AAAR determined that the permit fees collected by the forest department are used by forest officials to monitor mining activity, assess the quantity and type of mineral being quarried, conduct surveys, and keep a constant eye on the movement of products, which are unrelated to social or farm forestry. Hence, the contention of the applicant that the service provided is in relation to farm forestry and social forestry and is exempt from tax as per Notification No. 12/2017 was untenable.

Further, observed that the supply of permits by the forest department is taxable at the rate of 9% SGST and CGST each under SAC code 9991 (public administration and other services provided to the community as a whole; compulsory social security services) falling under Entry 29 of the notification dated June 28, 2017. More specifically, the services fall under public administrative services related to the more efficient operation of businesses. Hence, if the supplier, i.e., the Forest Department, is not registered under the provisions of GST, the applicant shall pay tax on a reverse charge basis as per Entry 5 of Notification No. 13/2017-Central Tax (Rate) dated June 28, 2017.

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