Mining operations under a contractor arrangement were treated as taxable mining service, not manufacture of iron ore.

A mining contract covering mine development, sizing, crushing, screening, material handling and related operations was treated as service in relation to mining and therefore taxable as mining service under the Finance Act, 1994. The arrangement showed a contractor performing mining-related work for the mine owner for agreed consideration, with sale proceeds collected by the owner and the contractor paid a share of the consideration, indicating a service-provider and service-receiver relationship. The argument that the activity amounted to manufacture of iron ore was rejected because the contract and actual operations disclosed mining activity rather than manufacture. Service tax liability and penalty were sustained.

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Issues: Whether the activities undertaken under the mining contract amounted to taxable mining service under Section 65(105)(zzzy) of the Finance Act, 1994, or to production/manufacture of iron ore outside the service tax net.

Analysis: The agreement showed that the appellant was appointed as contractor to undertake mining-related operations, including mine development, sizing, crushing, screening, material handling and allied activities connected with mining. Sale proceeds were collected by the mine owner, while the appellant received its share of the agreed consideration from the mine owner, indicating a service-provider and service-receiver arrangement. The nature of the work was therefore in relation to mining of mineral, which falls within the statutory definition of mining service. The contention that the activity was manufacture of iron ore was rejected because the contract and the actual operations disclosed mining activity and not manufacture.

Conclusion: The activity was held to be taxable mining service under Section 65(105)(zzzy) of the Finance Act, 1994, and the service tax demand and penalty were sustained against the appellant.

Final Conclusion: The appeal failed and the adjudication order confirming service tax liability was upheld.

Ratio Decidendi: Where a contractor undertakes mining operations and allied activities for the mine owner for agreed consideration, the activity is service in relation to mining and is taxable as mining service.

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