2021 (12) TMI 3 - AT - Service Tax

Service Tax Not Applicable on Mining Royalty: Tribunal Rules in Favor of Assessee

The Tribunal concluded that the demand for service tax on royalty and dead rent collected for granting mining rights cannot be sustained. The assessee's ... Levy of service tax - Renting of Immovable Property Services - support services or not - vacant land solely used for mining purposes - royalty and dead rent collected in terms of mining lease agreements for grant of mining rights - period from 01.07.2012 to 31.03.2016 - extended period of limitation - HELD THAT:- As per the law that existed prior to 01.07.2012, leasing of vacant land / immovable property for mining purposes was not taxable and was expressly excluded from the definition of “renting of immovable property service”. Prior to 01.07.2012, only those services which were specified by definition given in subsection (105) of Section 65 were taxable - A brief look into the history of service tax law would show that prior to 01.07.2012, Section 65 was the pivotal section of service tax law and it provided definition of all taxable services. The definition of ‘renting of immovable property’ was provided in Section 65 90(a). The taxable service of renting of immovable property was provided in Section 65 (105) (zzzz). Similarly, what is ‘event management’ is given in Section 65 (40) and the taxable service of event management is defined in Section 65 (zzzzr). An activity whether constitutes service was understood on the basis of the definition of classification and whether such service is taxable was to be understood on the basis of the definition of taxable service provided in Section 65 (105). From the definition, it can be seen that prior to 01.07.2012, definition of taxable service of ‘renting of immovable property services’ did not include renting of vacant land solely used for mining purposes - A new service tax regime was introduced vide Finance Act, 2012 which gave up the system of identifying taxable services with reference to the definitions or classification of services. Section 65B thus practically replaced erstwhile elaborate definitions and classifications provided in Section 65. Section 66B was inserted as the new charging section. A negative list was introduced as Section 66D which comprises of the list of services which are not taxable under law. The Revenue alleges that royalty and dead rent is the consideration paid for providing renting of immovable property services. The act of entering into a lease agreement for grant of mining rights arises out of statue, namely, Mines and Minerals (Regulation and Development) Act, 1957 as well as the Rajasthan Minor Minerals Concession Rules, 1986. No amount other than the charges specified in the Acts/Rules can be collected. The conditions that can be incorporated in the agreement are also prescribed by giving a Modal Agreement. The assessee who is the service provider thus has no say in the terms and the conditions of the agreement or on the charges that may be collected from the lessee - The clarification issued by the Board under the new Tax regime w.e.f. 01.07.2012 explaining the application of definition of “support services” lays down that services provided by Government in the nature of grant of mining rights or licensing rights does not fall within the meaning of ‘support services’ and is not taxable service. The circular / clarification / instructions issued by the Board are binding on the Revenue. True, it may be that renting of immovable property is mentioned in the includes part of the definition of “support services”. However, the said services of renting of immovable property has to be understood in the context of it being a support service provided by a Government to business entities. An activity of mere renting of immovable property by Government to business entities would fall within the definition of ‘support service’ and would be taxable - The activity of lease of land solely for mining purposes is in the nature of exercise of sovereign right and is not a service that entities can carry out by themselves. The service of renting of immovable property would fall within the definition of ‘support service’ only if such services fit into the middle part of the definition. Pertinently after the deletion of the words “support services” in Section 66D (a). The demand of service tax is made under reverse charge mechanism for the period after 01.04.2016 after the substitution of the word “any service” in clause (iv) of Section 66D (a) whereas the demand in these appeals is on the allegation that ‘renting of immovable property’ is a ‘support service’ The words ‘support services’ having been omitted w.e.f. 01.04.2016, the circular is not applicable for the period after 01.04.2016 - the issue on merits is held in favour of assessee and against the Revenue. Extended period of limitation - HELD THAT:- The period involved is from 01.07.2012 to 31.03.2016. The show cause notices have been issued on dates thereafter invoking extended period. In para-16 of the SCN dt. 05.10.2017 it is stated that assessee has not paid service tax and has not obtained services tax registration. It is also alleged that if the Revenue had not requested to provide information, non-payment of service would have gone unnoticed. That therefore, assessee has wilfully and deliberately suppressed facts with intent to evade payment of service tax - No particular positive act of wilful and deliberate suppression has been unearthed by Revenue with cogent evidence. Further, in the present case, there is clarification issued by the Board that grant of mining rights is not support service. For these reasons, the demand raised invoking the extended period cannot sustain. The assessee succeeds on the issue of limitation also. The demand of service tax cannot sustain - appeal allowed - decided in favor of appellant. Issues Involved:1. Liability of service tax under the category of 'Renting of Immovable Property Services' on royalty and dead rent collected for mining rights.2. Definition and applicability of 'support services' under Section 65B(49) of the Finance Act, 1994.3. Applicability of the negative list of services under Section 66D of the Finance Act, 1994.4. Clarifications issued by CBEC and their binding nature on the Revenue.5. Invocation of extended period for demand and the issue of limitation.Issue-wise Detailed Analysis:1. Liability of Service Tax under 'Renting of Immovable Property Services':The case revolves around whether the royalty and dead rent collected by the Department of Mines and Geology, Government of Rajasthan, for granting mining rights fall under 'Renting of Immovable Property Services' and are thus liable for service tax. The Revenue argues that the assessee is providing 'Renting of Immovable Property Services' by leasing land for mining purposes, which should be taxed under the Finance Act, 1994, for the period from 01.07.2012 to 31.03.2016.2. Definition and Applicability of 'Support Services':The definition of 'support services' under Section 65B(49) includes infrastructural, operational, administrative, logistic, marketing, or any other support of any kind. The Revenue contends that renting of land for mining purposes falls within this definition. However, the assessee argues that the grant of mining rights is a sovereign function and does not constitute 'support services.' The Tribunal agreed with the assessee, noting that the activity of granting mining rights is exclusive to the State and cannot be rendered by any private entity, thus not falling under 'support services.'3. Applicability of the Negative List of Services:Section 66D of the Finance Act, 1994, provides a negative list of services that are not taxable. The negative list includes services provided by the Government, excluding 'support services' provided to business entities. The Tribunal noted that the definition of 'support services' does not encompass the grant of mining rights, as clarified by CBEC. Therefore, the activity does not fall under the taxable category.4. Clarifications Issued by CBEC:The Tribunal emphasized the binding nature of CBEC's clarifications, which state that services provided by the Government in their sovereign right, such as granting mining rights, do not constitute 'support services.' The Tribunal cited several judgments affirming that circulars and clarifications issued by the Board are binding on the Revenue. The Tribunal found that the Revenue's demand contradicts the CBEC's clarification and thus cannot be sustained.5. Invocation of Extended Period for Demand and Issue of Limitation:The Tribunal addressed the issue of limitation, noting that the show cause notices were issued invoking the extended period, alleging willful suppression of facts by the assessee. The Tribunal found no basis for this allegation, as the assessee is a Government department, and all transactions were properly accounted for. The Tribunal held that the demand raised by invoking the extended period is unsustainable.Conclusion:The Tribunal concluded that the demand of service tax on royalty and dead rent collected for granting mining rights cannot be sustained. The assessee's appeals were allowed, and the Revenue's appeals were dismissed. The Tribunal also disposed of the cross objections filed by the assessee, emphasizing the binding nature of CBEC's clarifications and the lack of evidence for willful suppression by the assessee.