Mining services for sand quarrying held liable to service tax despite jurisdictional challenges and constitutional exemption claims

CESTAT Chennai held that the appellant's mining services were liable to service tax. The tribunal rejected jurisdictional challenges, finding both the show cause notice and adjudication order valid. Mining services relating to sand quarrying were deemed taxable, distinguishing service tax on mining activities from excise duty on goods. The appellant's claims regarding constitutional exemption, works contract classification, and VAT applicability were dismissed. Extended period of limitation was properly invoked due to suppression of facts, though penalty was not imposable under the circumstances. The case was remanded for recalculation of correct demand.

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Issues Involved:
1. Jurisdiction of the Adjudicating Authority
2. Mining Service
3. Leasing Services
4. Site Formation, Clearance, Excavation, Earthmoving, and Demolition Services
5. Extended Period Not Invocable
6. No Penalty Imposable

Summary:

1. Jurisdiction of the Adjudicating Authority:
The appellant challenged the jurisdiction of the Commissioner, Coimbatore, to adjudicate a matter where the show cause notice was issued by the ADG, DGCEI, Coimbatore Zonal Unit. The Tribunal found that the Central Excise Officer, defined under Section 2(b) of the Central Excise Act, 1944, includes any officer appointed by the Board. The DGCEI officer who issued the notice is a Central Excise Officer empowered to issue a show cause notice. Thus, both the SCN and the impugned order do not suffer from jurisdictional error.

2. Mining Service:
a. Exigibility of Minor Mineral:
The term "all minerals" includes "minor minerals." The Tribunal held that service tax is levied on activities where service is rendered, not on the mined sand per se. The nature and characteristics of the mineral do not matter.

b. 'In Relation to' Mining Alone is Taxable:
The Tribunal clarified that what is taxed is the activities in relation to mining and not mining itself.

c. Constitution Exempts the Property and Income of a State from Union Taxation:
The Tribunal referred to the Supreme Court's decision in re. The Bill to Amend the Sea Customs Act (1878), which held that the immunity granted to the States under Art. 289(1) does not extend to duties of customs, excise, or service tax.

d. Sand is Excisable Goods Classifiable under CETA Heading 2505 and Can't be Taxed under Service Tax:
The Tribunal distinguished between manufacture and service, holding that mere processing of goods by quarrying does not amount to manufacture. The incidence of tax is on the service rendered in quarrying.

e. The Sand is Sold Hence VAT is Applicable and Not Service Tax:
The Tribunal found that the appellant is only rendering service in relation to the mining of sand and no sale of sand is done by him requiring payment of VAT.

f. The Appellant's Services are Covered under Works Contract:
The Tribunal held that the appellant's activities constitute pure service and cannot be classified as a works contract.

g. Exemption for Services Rendered to a Governmental Authority:
The Tribunal found that the functions of PWD in relation to mining are not exempted under Articles 243 G and W of the Constitution.

h. Mining Services in Case of Neyveli Lignite Corporation:
The Tribunal directed that cum-tax benefit should be granted if not already given.

3. Leasing Services:
The Tribunal examined the agreement and found that there was a transfer of right of possession and effective control to the transferee. Hence, the activity is not liable to service tax. However, for vehicles supplied without a contract, the appellant would be liable to pay duty along with interest under the taxable service of supply of tangible goods.

4. Site Formation, Clearance, Excavation, Earthmoving, and Demolition Services:
The Tribunal found that the appellant provided composite services related to site formation and not just road construction. Therefore, the activities are liable to service tax without the benefit of exemption under Notification No. 25/2012.

5. Extended Period Not Invocable:
The Tribunal held that the appellant suppressed facts with the intention to evade payment of duty, justifying the invocation of the extended period for issuing the SCN.

6. No Penalty Imposable:
The Tribunal found no reasonable cause to invoke the benefit of Section 80 of the FA 1994. The penalty under section 78 of FA 1994 is mandatory, and the adjudicating authority has no discretion in imposing it.

Modifications:
- The matter is remanded to the Original Authority for quantifying and intimating the correct demand of duty and interest for vehicles supplied without a contract.
- Cum-tax benefit should be granted if not already given.
- The revised amount of penalty payable may be informed to the appellant.
- Penalty under section 77 (2) of FA 1994 is quashed.

The appeal is disposed of on these terms.

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