2008 (10) TMI 115 - AT - Service Tax

Contractor's core activity mining; site-formation incidental, pre-1 June 2007 services not taxable; contract not divisible, penalty quashed

CESTAT, BANGALORE-AT held that the contractor's core activity was mining (excavation and winning of ore) and site-formation work was incidental to mining. ... Liability for Service Tax under the category of 'site formation and clearance, excavation and earthmoving and demolition services.' - Classification of services - Work of excavation and removal of overburden and Barytes Ore, loading, transportation, unloading and leveling at APMDCL Project site - HELD THAT:- It is very clear that the salient feature of the services rendered by the appellant is mining. In other words, the appellant is expected not only to remove the overburden but also to excavate the Barytes Ore. We cannot say that the appellant is not undertaking site formation work, but site formation work undertaken by the appellant is incidental to the mining activity. To put it in different words, the essential character of the work undertaken by the appellant is mining or winning of minerals. The mining services became taxable only with effect from 1-6-2007. The period in the present case is prior to 1-6-2007. It cannot be said that the entire service rendered by the appellant comes under the category of site formation. If that were so, one cannot say that it also falls under 'Mining Services.' If the provisions of Section 65A (2) of Chapter V of the Finance Act, 1994 is applied, the services rendered would amount to only mining services. As the contract is a comprehensive one for mining, it cannot be vivisected for levying service tax on that portion of the activity relating to 'Site Formation' in the light of the decision of the Tribunal in the case of Daelim Industrial Company v. CCE, Vadodara [2003 (6) TMI 36 - CESTAT, NEW DELHI]. Consequently, we hold that the services rendered by the appellant are classifiable only under the category of 'Mining Services' and therefore they would not be liable to service tax prior to 1-6-2007. Thus, there is no justification for imposition of any penalty. Hence, we allow the appeal with consequential relief. Issues Involved:1. Liability for Service Tax under 'site formation and clearance, excavation and earthmoving and demolition services.'2. Classification of services rendered by the appellant.3. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.Issue-Wise Detailed Analysis:1. Liability for Service Tax under 'site formation and clearance, excavation and earthmoving and demolition services':The primary issue was whether the appellant was liable for Service Tax during the relevant period under the category of 'site formation and clearance, excavation and earthmoving and demolition services.' The appellant was contracted by Andhra Pradesh Mineral Development Corporation Ltd. (APMDCL) to mine Barytes Ore from depths of 42 to 100 meters. The Revenue argued that the appellant's activities, including excavation, removal of overburden, loading, transportation, unloading, and leveling, fell under the taxable service defined in Clause (97a) of Section 65 of the Finance Act, 1994, effective from 16-6-2005. The CBEC's clarification dated 27-7-2005 supported this view, stating that the definition of 'site formation and clearance, excavation and earthmoving' is inclusive and indicative, not exhaustive.2. Classification of services rendered by the appellant:The appellant contended that their work did not relate to site formation but to mining Barytes Ore, which was not taxable during the relevant period. They argued that 'mining operation' as per the Mines and Minerals (Development & Regulation) Act, 1957, means any operation undertaken for winning any mineral, which was their primary activity. The Tribunal noted that the essential character of the appellant's work was mining, with site formation being incidental. The Tribunal referenced Section 65A (2) of Chapter V of the Finance Act, 1994, which states that services should be classified based on their essential character. Since the mining services became taxable only from 1-6-2007, the Tribunal concluded that the appellant's services were classifiable under 'Mining Services' and not under 'Site Formation Services.'3. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994:The Revenue invoked penalties under Sections 76, 77, and 78, arguing that the appellant had not registered for Service Tax within one month from the imposition date and had suppressed their tax liability. The appellant countered that there was no intention to evade tax, as all financial transactions were duly reported to tax authorities. The Tribunal found that since the services rendered were classifiable only under 'Mining Services,' which were not taxable before 1-6-2007, there was no justification for imposing penalties. Consequently, the appeal was allowed with consequential relief.Conclusion:The Tribunal concluded that the services rendered by the appellant were classifiable only under 'Mining Services' and not under 'Site Formation Services.' Therefore, the appellant was not liable to pay Service Tax for the period before 1-6-2007. The penalties imposed under Sections 76, 77, and 78 were also set aside, allowing the appeal with consequential relief.