2025 (6) TMI 2049 - AT - Service Tax

No Service Tax on Mining Services from 2008-2017 Under Section 66D(f); Sponsorship and Cenvat Issues Reviewed

The CESTAT held that the appellant is not liable to pay service tax under 'Mining Services' for 2008-2017, as the activities constituted manufacture on ... Levy of service tax - Mining Services - Sponsorship Services - non-payment of service tax on sale of solar power, which is exempted services - Availing credit on common inputs without maintaining separate records - violation of Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - demand barred by time limitation or not - levy of penalty. Whether the appellant is liable to pay service tax under “Mining Services” for the period 2008-2009 to June, 2017 or not? - HELD THAT:- Admittedly, in this case, the appellant is paying excise duty w.e.f. 24.03.2011 and prior to which, as no excise duty was payable but the appellant was paying VAT/Central Sales Tax as per Statute of State/Central Government respectively, which is evident from the records where the appellant has raised the invoices showing payment of Central Excise duty and VAT during the impugned period - In that circumstances, the excise duty has been accepted by the Revenue in the activity of manufacture in terms of Section 2 (f) of the Central Excise Act, 1944. In that circumstances, it cannot be termed that the appellant is engaged in the activity of providing mining services of coal. Crushing/sizing of coal itself was held by this Tribunal as manufacturing activity. In that circumstances, the extraction of coal from the mine including crushing/sizing thereof, are activity of manufacture, on which, the appellant has paid VAT/Excise duty. In that circumstances, no service tax is payable by the appellant under “Mining Service” - as the activity undertaken by the appellant amounts of manufacture, therefore, no service tax is payable by the appellant under the category of “mining service”. The issue is answered in favour of the appellant that the appellant is not liable to pay service tax under the category of “mining service” or under “negative list regime” as the said process/activity amounting to manufacture is specifically covered in the negative list under Section 66D(f) of the Finance Act, 1944. Whether the appellant is liable to pay service tax on Sponsorship Services or not? - HELD THAT:- The appellant has produced certain sample copies of letters received from the various organizations, which shows financial assistance and payment receipts evidencing that the expenses booked under Business Development expenses were not in the nature of sponsorship services. All the said letters show that these are only financial assistance given by the appellant as donations, but the appellant has failed to produced the entire copies of the letters from the organizations, which sought financial assistance from the appellant and the adjudicating authority had no opportunity to examine the said aspects whether the expenses booked by the appellant under Business Development expenses are in the nature of sponsorship services or mere donation., therefore, to examine the said aspects, the matter needs to examine at the end of the adjudicating authority. Therefore, to examine the facts that whether the expenses booked under Business Development expenses are only donation or sponsorship services, the adjudicating authority shall examine the same based on the documentary evidences and shall give specific finding that how based on documents shown by the appellant, the said expenses are covered under “sponsorship services” or not? Whether the appellant has violated the provisions of Rule 6(3)(i) of the Cenvat Credit Rules, 2004 for not having paid service tax on sale of solar power, which is exempted services and have availed cenvat credit on common inputs without maintaining separate records? - HELD THAT:- It is evident that from the said Certificate issued by the Chartered Accountant certifying that the appellant is maintaining set of books of accounts and all records for its coal mining business and solar power business and the appellant has not taken any cenvat credit under Central Excise Act, 1944 and under the provisions of the Finance Act, 1944 relating to the service tax in respect of transactions relating to the solar power business since the commencement of the solar power business. In that circumstances, the demand raised on account of violation of Rule 6(3)(i) of the Cenvat Credit Rules, 2004, is not sustainable. Accordingly, the demand confirmed on this account, is set aside - the issue is answered in favour of the appellant. Whether in the facts and circumstances of the case, the penalty can be imposed on the appellant or not? - HELD THAT:- As it is held that no demand is sustainable against the appellant, therefore, in the facts and circumstances of the case, no penalty is imposable on the appellant. Appeal disposed off. ISSUES: Whether the activity of raising and sizing of coal amounts to 'manufacture' under Section 2(f) of the Central Excise Act, 1944, thereby excluding liability to pay service tax under 'Mining Services' for the period 2008-2009 to June 2017'Whether service tax is payable on 'Sponsorship Services' alleged to have been provided by the appellant'Whether there is a violation of Rule 6(3)(i) of the Cenvat Credit Rules, 2004 by availing credit on common inputs used for both taxable and exempted activities without maintaining separate records'Whether the demand for service tax for the period 1st April 2008 to 31st March 2012 is barred by limitation despite issuance of show-cause notice invoking extended period'Whether penalty can be imposed on the appellant in the facts and circumstances of the case? RULINGS / HOLDINGS: The activity of raising coal including crushing/sizing thereof constitutes 'manufacture' within the meaning of Section 2(f) of the Central Excise Act, 1944, and is therefore outside the purview of service tax under 'Mining Services'. The appellant's payment of excise duty and VAT on the sized coal confirms this position; thus, no service tax under 'Mining Services' is payable for the period 2008-2009 to June 2017.The allegation of service tax liability on 'Sponsorship Services' is not established on the record; the appellant has produced evidence indicating that payments were financial assistance/donations, not sponsorship services. The matter is remanded for further adjudication to determine the true nature of the expenses.The appellant has not violated Rule 6(3)(i) of the Cenvat Credit Rules, 2004, as it maintains separate accounts for inputs used in taxable and exempted activities, supported by Chartered Accountant certificates; hence, no demand under this rule is sustainable.The demand for the period 1st April 2008 to 31st March 2012 is barred by limitation since all relevant facts were known to the Revenue prior to the impugned period, and the extended period of limitation cannot be invoked repeatedly on the same facts, following the principle laid down by the Supreme Court.Since no demand is sustainable against the appellant on the substantive issues, no penalty is imposable in the facts and circumstances of the case. RATIONALE: The Court applied the statutory definition of 'manufacture' under Section 2(f) of the Central Excise Act, 1944, which includes any process incidental or ancillary to the completion of a manufactured product. The crushing/sizing of coal was held to be an integral part of manufacture, rendering the activity excisable and excluding it from service tax liability under the Finance Act, 1994.The principle of mutually exclusive levies under the Constitution of India was emphasized, whereby VAT/excise duty and service tax cannot be levied simultaneously on the same activity, as upheld in Supreme Court precedents including Bharat Sanchar Nigam Ltd. v. Union of India.The Court relied on prior Tribunal decisions including the appellant's own earlier case and other coordinate bench rulings that consistently held mining and sizing of coal as manufacture and excisable activity, not taxable as service.The Court referred to the settled legal principle that extended limitation cannot be invoked repeatedly for the same facts, citing the Supreme Court ruling in Nizam Sugar Factory v. Collector of Central Excise.Regarding the allegation under Rule 6(3)(i) of the Cenvat Credit Rules, the Court accepted the Chartered Accountant's certification of separate accounts maintenance and held that expert certificates cannot be discarded without cogent evidence, relying on Tribunal precedents.The Court remanded the issue of 'Sponsorship Services' for fresh examination by the adjudicating authority due to incomplete documentary evidence and the need for fact-finding on the nature of the expenses.