In Advance Ruling No. KER/2/2023 -AAR- Dharti Dredging and Infrastructure Ltd. liable to pay 18% GST on services provided by Irrigation Department for transfer of right to extract sand & mud from Mangalam Dam: AAR (Kerala)
Members Sreeparyathy S.L. (Central Tax) & Abraham Renn S (State Tax) [20-02-2023]

Read Order: In Re: Dharti Dredging and Infrastructure Ltd.

Chahat Varma

New Delhi, July 18, 2023: The Kerala bench of the Authority for Advance Rulings has ruled that Dharti Dredging and Infrastructure Ltd. (applicant) was the recipient of services provided by the Irrigation Department of the Government of Kerala, which involved the transfer of the right to extract sand and mud from the reserve of Mangalam Dam and the services were subject to GST at the rate of 18%.

In the present case, the applicant, a private limited company, was awarded a tender by the Irrigation Department of the Government of Kerala for desiltation work at Mangalam Reservoir in Palakkad, Kerala. The company sought an advance ruling on two aspects. Firstly, whether they were eligible for the exemption provided under Entry No.3 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017, considering that the services were provided to the Irrigation Department, which was under the direct control of the Kerala State. Secondly, if the ruling determined that the services were taxable, whether the applicant could pay the goods and services tax (GST) to the government under the reverse charge mechanism, as per Sl. No. 5 of Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017.

The Authority observed that the transaction between the applicant and the Government, as covered by the subject contract, conferred the right to the applicant to extract the mud and sand from underneath the reservoir of Mangalam Dam. The applicant had the authority to appropriate and sell the extracted materials during the term of the contract. The consideration for this right was a lump sum amount of Rs. 15 Crores, payable in instalments spread over the contract period. Based on these facts, the Authority concluded that the supplier of the service was the Irrigation Department of the Government of Kerala, and the applicant was the recipient of the service.

The Authority further determined that the grant of the right to desilt the reservoir and extract sand and mud fell within the scope of 'licensing services for the right to use minerals, including its exploration and evaluation' under Heading 997337 of the Scheme of Classification of Services under the GST regime. Based on this, it was concluded that the service provided by the Irrigation Department to the applicant was appropriately classified under SAC 997337. As a result, the service attracted GST at the rate of 18% as per entry at Serial No. 17 (viii) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017.

The Authority further ruled that as per entry at Serial No. 5 of Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017, the liability to pay the GST in respect of services provided by the Central Government, State Government, Union territory, or local authority to a business entity rests with the business entity located in the taxable territory. Therefore, the applicant, being the recipient of the services provided by the Irrigation Department of the Government of Kerala, was liable to pay the GST on a reverse charge basis.