2014 (7) TMI 706 - HC - Service Tax

High Court modifies Tribunal's order, reduces pre-deposit amount, reinstates appeal. Emphasizes specific agreement for mining services.

Core Minerals Versus The Commissioner of Service Tax

Core Minerals Versus The Commissioner of Service Tax - 2014 (36) S.T.R. 533 (Mad.) , [2015] 79 VST 579 (Mad) Issues Involved:1. Justification of the pre-deposit order by the Tribunal.2. Determination of the value of mining services for service tax purposes.3. Application of Section 67(1)(i) of the Finance Act, 1994.4. Application of Rule 3 of the Service Tax (Determination of Value) Rules, 2006.5. Financial hardship and undue hardship considerations.Issue-Wise Detailed Analysis:1. Justification of the Pre-Deposit Order by the Tribunal:The appellant contested the Tribunal's order directing a pre-deposit of Rs. 2.50 Crores for entertaining the appeal. The Tribunal's decision was based on the premise of potential undervaluation of services. The High Court found that the Tribunal overlooked the specific agreement for providing mining services, which indicated a fixed value for the services rendered. The Court held that the Tribunal was not justified in ordering the pre-deposit in the manner it did.2. Determination of the Value of Mining Services for Service Tax Purposes:The appellant argued that the value of mining services should be based on the specific agreement, which had a predetermined rate per ton. The department, however, included additional expenses listed in the appellant's Profit and Loss Account for determining the service tax. The High Court noted that the agreement for providing mining services should be tested on its own merits under Section 67(1)(i) of the Finance Act, 1994, and not by adding other business expenses.3. Application of Section 67(1)(i) of the Finance Act, 1994:The Court emphasized that the agreement for providing mining services falls under Section 67(1)(i) of the Finance Act, 1994, which pertains to cases where consideration is received in money. The department's approach of deriving a different value under Rule 3 of the Service Tax (Determination of Value) Rules, 2006 was not justified without first concluding that Section 67(1)(i) does not apply.4. Application of Rule 3 of the Service Tax (Determination of Value) Rules, 2006:The High Court observed that Rule 3(b) of the Service Tax (Determination of Value) Rules, 2006 applies only when the value cannot be determined under Rule 3(a). The Court found no cogent reason in the adjudication order for invoking Rule 3(b) when a specific agreement indicating the value of services exists. The Court also noted that the procedure under Rule 4 for verifying the accuracy of the value was not followed by the department.5. Financial Hardship and Undue Hardship Considerations:The appellant raised the plea of financial hardship, which was acknowledged by the Tribunal. The High Court referred to the Supreme Court's decision in Benara Valves Ltd. v. CCE, emphasizing that undue hardship and safeguarding the interests of the Revenue must be considered. The Court found merit in the appellant's claim of undue hardship and financial difficulty, leading to the modification of the pre-deposit order.Conclusion:The High Court modified the Tribunal's order, reducing the pre-deposit amount to Rs. 1,00,00,000/- and reinstated the appeal dismissed for non-compliance. The Court emphasized the need to consider the specific agreement for mining services under Section 67(1)(i) of the Finance Act, 1994, and found the Tribunal's approach of invoking Rule 3(b) without proper justification to be flawed. The Court also recognized the appellant's financial hardship and adjusted the pre-deposit requirement accordingly.