GST payable on forest permit fee on reverse charge basis: AAR

M/s. Singareni Collieries Company Limited is entering into contracts with a host of vendors/suppliers for the extraction of coal. Under rule (3) of State Forest produce transit rules they are liable to pay a certain amount to move the mined coal through the forest area as permit fee at the rate of Rs. 10 per ton of coal transported. The applicant is desirous of ascertaining whether GST is attracted on reverse charge on this amount paid to the Forest department. Hence this application.

Questions raised:

1. Whether, in the facts and circumstances of the case, the Applicant is obliged to pay GST on the forest permit fee paid by it under the reverse charge mechanism?

2. Alternatively, if GST is payable on the forest permit fee paid by the Applicant, can the service received by the Applicant be classifiable under heading 9973 of Notification No. 11/2017 Central Tax (Rate) dated 28th June 2017 and thus be eligible to a lower rate of tax for the period prior to 01-01-2019?

Advance Ruling:

The coal mines operated by the applicant are situated in the forest area and under rule 3 of the State Forest produce transit rules, no forest produce shall be moved into or from within the State by land or water. Such movement is permitted only when the person moving the produce obtains a forest permit by paying a fee which in the instant case is Rs. 10 per ton of coal transported.

The fee collected is for regulating the act of transport through a forest area. The Hon’ble Supreme Court of India in the case of P. Kannadsan etc. vs. State of Tamil Naidu & other etc. (1996)5SCC670 has been observed that “…in the matter of fees, it is not necessary that element of quid pro quo should be established in each and every case, for it is well settled that fees can be both regulatory and compensatory and that in the case of regulatory fees, the element of quid pro quo is totally irrelevant.” Such fees may offset the expenses incurred in rendering the said service and co-relation between the two is not important and in some instances such as license fee, which are regulatory in nature, the quid pro quo also is not essential.

Further the contravention or violation of State Forest produce Transit rules will attract penalty under Sections 20 and 29 of A.P. Forest Act, 1967. Thus transporting coal through forest area without obtaining a forest transit permit and paying the transit fee is punishable under Section 20 (4) of the Forest Act. Penalties are fixed for breach of the provisions of the Rules. The transit fee is the amount of consideration for tolerating an act or a situation arising out of the legal obligation during the transport of the mineral through a forest area. The entry in 5(e) of Schedule II to the CGST Act classifies this act of forbearance as follows:

5(e): Agreeing to the obligation to refrain from an act, or tolerate an act, or a situation, or to do an act.

Further Section 2(31)(b) of the CGST Act mentions that consideration in relation to the supply of goods or services or both includes the monetary value of an act of forbearance.

The facts of the present case clearly reveal that the forest department is collecting transit fee to allow the transit of vehicles carrying coal through the forest area, thus this is covered under entry 5(e) of the Schedule II to the CGST Act, 2017 wherein ‘to do an act’ is deemed to be a service. Forest department’s act of allowing such vehicles through forest area is therefore covered under this head. Further these services are not classifiable under heading ‘9973’ of Notification No. 11/2017 as the same relate to ‘Leasing or rental services without an operator’ whereas the present service relates to Entry 5(e) of the Schedule II to the CGST Act, 2017.

Further the consideration received is taxable on reverse charge basis vide the service entry at Serial No. 5 of Notification No. 13/2017 dated: 28.06.2017.

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