No Service Tax on Mining Rights Agreements Executed Before April 1, 2016 Under Service Tax Law

The CESTAT New Delhi dismissed the appeal concerning non-payment of service tax on amounts paid to the government for the right to use natural resources from mines. The Tribunal held that the taxable event for service tax arises when the service is provided or agreed to be provided. Since the agreements for mining rights were executed before April 1, 2016-the date when such services became taxable-the appellant was not liable to pay service tax. The Point of Taxation Rules determine the timing of payment, not the taxability of the service, and thus were inapplicable. The decision aligned with the Division Bench ruling in a similar matter involving the Madhya Pradesh State Mining Corporation.

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Issues involved:
The appeal challenges the dropping of proceedings against the respondent by the Commissioner for non-payment of service tax on the amount paid to the Government for assignment of right to use natural resources.

Issue 1: Non-payment of service tax on periodical charges for assignment of right to use natural resources:
The Department appealed against the dropping of proceedings by the Commissioner, arguing that the service provided to the appellant became taxable from April 01, 2016, as per Section 66D of the Finance Act. The Department contended that since the payment under the agreements was to be made after April 01, 2016, the appellant would be liable to pay service tax. However, a previous Tribunal decision held that the taxable event for service tax is the time when the service is provided or agreed to be provided, and since the agreements were executed before April 01, 2016, the appellant would not be liable to pay the service tax.

Issue 2: Application of Point of Taxation Rules:
The Department relied on Rule 7 of the Point of Taxation Rules 2011 to argue that the appellant should be liable to pay service tax on yearly installments due after April 1, 2016. However, the Circular issued by the CBEC clarified that the exemption from service tax on one-time charges for assignment of right to use natural resources does not apply to periodic payments. The Point of Taxation Rules do not determine the taxability of the service, and the issue was already addressed in a previous Tribunal decision.

In conclusion, the appeal was dismissed as the order passed by the Commissioner was found to be legal and did not warrant any interference.

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