Ministry of Finance, Government of India issued a notification on clarification on 13 Apr’16 on issues regarding levy of of service tax on services provided by government or a local authority to business entities.
Any service provided by Government or a local authority to a business entity has been made taxable w.e.f 01 Apr’16.
The point no. 6 of circular no. 334/8/2016-TRU states that “Services by way of allocation of natural resources to an individual farmer for the purposes of agriculture have been exempted vide Notification No. 25/2012 – ST dated 20.6.2012 as amended by Notification No. 22/2016 – ST dated 13.4.2016 [Entry 59 refers]. Such allocations/auctions to categories of persons other than individual farmers would be leviable to Service Tax.”
Hence it can be inferred from the above point that except allocation of natural resources to an individual farmer, all other allocation of natural resources to business entities attract levy of service tax, including extraction of iron ore.
Link to the service tax notification dated 13 Apr’16
Currently royalty on iron ore is being charged @ 15%. And currently the service tax stands at 14.5% (14% Service Tax and 0.5% Swachh Bharat Cess).
How much will levy of service tax impact domestic iron ore prices?
SteelMint spoke to few miners to assess how will levy of service tax on royalty of iron ore impact domestic iron ore prices in India.
A Karnataka based participant highlighted that “as per the recent service tax notification, service tax will be levied on royalty on iron ore w.e.f 01 Apr’16. Thus the e-auctions conducted in this fiscal will attract levy of service tax. However further clarifications on the same are still awaited.”
Talking about Karnataka iron ore e-auctions, impact on high grade iron ore (both lump and fines) is expected to be around INR 35-45/MT. Thus bulk iron ore purchases will successively become costlier. This may lead to rise in base prices of the e-auction, he added.
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