Classification of service— In the instant case, the applicant is a Mine Developer and Operator (“MDO”) and is presently engaged in the developing and operating a Coal mine at Kiloni, District Chandrapur, Maharashtra (“the Mine”). This mine has been allotted to Karnataka Power Corporation Limited (“KPCL”) by the Govt. Of India, for mining of coal and to be used only for captive purpose in generation of power BY KPCL.

The Applicant has been tasked by KPCL with developing and operating the Mine & excavating coal & delivering it to KPCL for generation of power. The Agreement lays down detailed guidelines & terms & conditions which governs the rights of KPCL & Applicant and also lays down various parameters of performance of the Applicant. It is this activity of the Applicant and the Agreement which is the basis for the subject issues.

The applicant, seeking an advance ruling in respect of the following questions:

Question 1 – Whether the activity carried out by the Applicant under the Agreement is supply of Goods or is a supply of Service and should accordingly be subject to GST under HSN 2701 (chargeable @ 5% as supply of coal) or under HSN 9986 (chargeable @ 18% as Support Services to Mining)?

Question 2: Since, in terms of Article 24.3 of the Agreement, the right and ownership on the Coal mined by the Applicant always vests in and remains with KPCL and the Applicant is only responsible for excavation, transport and delivery, and as such cannot transfer ownership to the coal, whether the applicant should raise an invoice under MGST/CGST or under IGST in as much as the Applicant is of the view that the entire activity takes place in the State of Maharashtra only.

Question 3: Can the present contract be treated as a single consolidated contract or a divisible contract in view of the fact that four components of the contract (viz. Excavation of Coal, Transport Service, Handling Charges (ind. Additional Handling Charges) and Restoration and Rehabilitation charge] are clearly distinguishable and separately identifiable and therefore the tax treatment under GST shall also be different and separate?

Question 4: There are certain other components like Royalty, MMDR, DMF Fund, Cess, Stowing Excise Duty, Reserve Price, etc. which are levied on the coal excavated from the Mine which is payable directly by KPCL to the Government of India and the State Government of Maharashtra. The Applicant neither has any liability to pay nor does it makes any payment of such amount. Under the circumstances, is the Applicant required to consider such amounts/payments for the purpose of determining the transaction price in any of the situation as enumerated above?

Held that— The first question raised by the applicant is whether the impugned activity carried out by the Applicant under the subject Agreement is supply of Goods or is a supply of Service and whether the said activity should accordingly be subject to GST under HSN 2701 (chargeable @ 5% as supply of coal) or under HSN 9986 (chargeable @ 18% as Support Services to Mining).

The coal, as goods, belongs to the Mine Owner i.e. the Government of India and the Government of India has allotted the Mines to Karnataka Power Corporation Limited (“KPCL”) for mining of coal, to be used only for captive purpose in generation of power by the KPCL. Therefore, there is no supply of coal by the applicant, purely because the applicant neither has any ownership rights on the coal nor has any rights to sell the coal that has been excavated by it. Hence, the applicant is involved in supply of services in the instant case (as seen from the ‘Scope of Supply” in the Agreement) and there is no supply of coal by the applicant.

The impugned activity carried out by the applicant is supply of services and not supply of goods. 

Question No. 2 & 3 were withdrawn by the applicant during the course of the Final Hearing.

The applicant (supplier of service) and KPCL (recipient of service) are not related persons and price is the sole consideration for the supply. 

The amounts towards Royalty, MMDR, DMF Fund and Reserve Price are payable by KPCL directly to Government of Maharashtra and which is being paid accordingly by KPCL. Therefore, the said amounts are not payable by KPCL to the applicant. From the submissions we also find that the said amounts are not paid by KPCL to the applicant. Thus the amounts towards Royalty, MMDR, DMF Fund and Reserve Price are neither payable nor paid to the applicant by KPCL. Hence the provisions of Section 15 (1) are not satisfied in the subject case.