By TIOL News Service

NEW DELHI, MAR 12, 2014: THE appellant are engaged in business of mining and related works. They are registered with Service Tax Department since 06/4/09 for payment of service tax. The appellant also provide services to M/s Rajasthan State Mines and Minerals Ltd., a Government of Rajasthan Enterprise [RSMML] in relation to mining of lignite. In this regard the appellant entered into an agreement with RSMML on 16/1/03. In terms of the agreement, the appellant's job was clearing the site for mining, excavation of top soil and it's dumping at a specified place, removal of the overburden and raising of saleable lignite from Matasukh Mines located at Rajasthan. The   payment   for the services provided by the appellant, in terms of Section VII of the agreement, was on the basis of per M.T. of saleable lignite mined by them.

Inquiry in respect of their activity was initiated by the Department sometime in the year 2007 and the appellant under their letter dated 09/3/07 informed the Department about their activity, pleading that the services provided by them were not taxable services. In their letter to the Department, they emphasized that they receive payment from RSMML in terms of their agreement for the quantity of lignite mined and not for other activities like removal of over burden or excavation of top soil.

Subsequently, the Department taking a view that the activity of the appellant was taxable as 'cargo handling' service till 15/06/05 and thereafter from 16/06/05 to 31/05/07 their activity was taxable as 'site formation and clearance, excavation and earth moving service' and w.e.f. 01/6/07 their activity was taxable as ‘mining service' issued a show cause notice dated 29/9/08 to them for demand of service tax amounting to Rs.1,63,14,265/- alongwith interest and penalty.

The Commissioner, Central Excise, Jaipur II confirmed the service tax demand and imposed truckloads of interest and penalty.

In the matter of the Stay application filed, the CESTAT held -

4. Page 25 of the agreement dealing with scope of work and Special condition of the contract appearing at para 4.2.1, throw light that principal activity that was required to be carried out by the appellant was excavation and digging. This seems to be after removal of overburden. When mining activity came to be taxed, the appellant stated that they have deposited Rs.30 lakhs (Rupees Thirty Lakhs Only) towards service tax liability. Prima facie, the case also appears to be the case of removal of wastes inside mine itself. But invoices show the activity carried out to be mining since consideration paid to the appellant is linked to output. All these details shall be looked into in the course of hearing. Without expressing any opinion at this stage, but considering that Rs.30 lakhs (Rupees Thirty Lakhs Only) has already been paid by the appellant, realization of balance demand shall be stayed till disposal of appeal.

We reported the Stay order as - (2009-TIOL-1802-CESTAT-DEL).

The appeal was heard recently.

The appellant inter alia submitted -

+ Confirming service tax demand on the amount of remuneration received by the appellant for mining service for the period from 2003 to 15/06/05 by classifying the same as the Cargo Handling Service is absolutely without any basis, as the loading of the mined lignite into the trucks is a peripheral activity and in any case handling of mined lignite etc. within the mining area is not Cargo Handling Service, as held by the Tribunal in the case of Sainik Mining & Allied Services Ltd. - (2008-TIOL-77-CESTAT-KOL).

+ As regards the classification of the appellant's activity during period from 16/6/05 to 31/5/07 as site formation and clearance excavation and earth moving service, the Tribunal in the case of   M. Ramakrishna Reddy - (2008-TIOL-2337-CESTAT-BANG) has held that the site formation work during the period prior to 01/6/07 could not be taxed under Section 65 (105) (zzza).

The Revenue representative justified the order passed by the adjudicating authority and also placed reliance on the decision in Gajanand Agarwal - (2008-TIOL-2076-CESTAT-KOL).

The Bench observed -

++ Mining service became taxable w.e.f. 01/6/07 by insertion of (zzzy) to Section 65 (105) and therefore we have no doubt that w.e.f. 01/6/07 the appellant's activity was taxable under Section 65 (105) (zzzy). In fact, the levy of service tax for the period from 01/6/07 is not disputed and the dispute is only for the period prior to 01/6/07.

++ As regards the Department's plea that during period prior to 16/6/05, the appellant's activity was taxable as ‘Cargo Handling service' under Section 65(105)(zr), except for mention of loading of the mined lignite of the desired quantity into the trucks in Clause 4.2.1 (c) of the agreement, there is absolutely no mention of any handling or transportation of coal by the appellant within the mining area. From the nature of the contract also, it cannot be said to be a contract for handling cargo and, hence, it would be absurd to classify the appellant's activity as cargo handling service and charge service tax. Therefore, service tax demand for the impugned period is not sustainable at all. [Decisions in Sainik Mining & Allied Services Ltd. & Coal Carriers relied upon & decision in Gajanand Agarwal cited by Revenue distinguished]

++ Service tax demand for the period from 16/6/05 to 31/5/07 has been confirmed by classifying the appellant's activity as 'site formation and clearance, excavation, earth moving and demolition service'. From the appellant's contract it is clear the contract is for mining of lignite of the required quality and in course of mining, while the appellant are also required to clear the site and remove the top soil and over burden, there is no separate payment for this activity. The activity of site formation and clearance, excavation of top soil and over burden, therefore, has to be treated as an activity ancillary to mining and since the overall contract is for mining and as such it is an indivisible contract, the entire contract has to be treated as a mining contract and not a contract for site formation, clearance, excavation and earth moving. Therefore, for this period also, the appellant's activity cannot be subjected to service tax. [decision in M. Ramakrishna Reddy - (2008-TIOL-2337-CESTAT-BANG) relied upon]

++ When w.e.f. 01/6/07 the activity of the appellant has been accepted by the Department as mining service, for the period prior to 01/6/07, the same activity cannot be classified as site formation and clearance, excavation and earth moving or as cargo handling service.

++ For service tax demand w.e.f. 01/6/07 the only plea of the appellant is of limitation.The SCN for service tax demand for the period from October 2007 to March 2008 could be issued upto 24/4/09, that is one year from the relevant date, as the last date for filing of ST-3 return for October 2007 to March 2008 period was 25/4/08. Since, the show cause notice has been issued on 29/9/08, the same is within time. Similarly, for the six monthly period ending 30th September 2007 last date for filing ST-3 was 25/10/07 and the SCN for demand of short paid service tax for this period could be issued upto 24/10/08, while the show cause notice had been issued on 29/9/08. Thus the show cause notice for both the periods had been issued within the normal limitation period. Accordingly, the service tax demand for the period from 01/6/07 to 31/3/08 has to be upheld.

++ Even after the mining service becoming taxable w.e.f. 01/6/07 the appellant did not take registration, which was taken only in 2009. The appellant are not an illiterate or semi-illiterate individual in respect of whom it could be said that they were not aware of the provisions of the law. Since no such convincing reason has been   given to prove their bonafide in not paying ST, penalty under Section 76, 77 and 78 would be attracted.

++ The service tax demand for the period from 01/6/07 to 31/3/08 is upheld alongwith interest and also the penalty under Section 78 is also upheld. Similarly, the penalty @ Rs. 200/- per day under Section 76 for the period from 01/6/07 to 31/3/08 is also upheld.

++ The service tax demand for the period prior to 01/6/07 and also the penalty under Section 78 to that extent is set aside.

In fine, the appeal was partly allowed.

(See 2014-TIOL-387-CESTAT-DEL)