2023 (11) TMI 1405 - AT - Service Tax

Three-year delay in show cause notice overturns tax demands despite manpower, construction and service classification rejections

CESTAT, Kolkata (AT) held that manpower deployed for mining and embankment civil works within the mining premises amounted to Manpower Supply and ... Classification of service - Manpower was deployed for mining activity constitutes Manpower Recruitment or Supply Agency service or not - civil works (embankment/wall construction within mining premises) constitute taxable Commercial and Industrial Construction services or not - work of removal of silt from a tank located in the mining area constitutes taxable Cleaning Activity or not - internal movement of mined material within mining premises by excavators constitutes taxable Cargo Handling services - Time limitation. Manpower was deployed for mining activity constitutes Manpower Recruitment or Supply Agency service or not - HELD THAT:- It is agreed with the Learned AR that the Work Contract clearly speaks of ‘Manpower Supply’ only. Therefore, on merits, the submissions made by the Appellant are rejected. Civil works (embankment/wall construction within mining premises) constitute taxable Commercial and Industrial Construction services or not - HELD THAT:- The civil work has been undertaken for the embankment within the mining premises. The mining activity is undertaken for commercial purposes by FACOR. Therefore, on merits, the submissions made by the Appellant are dismissed. Work of removal of silt from a tank located in the mining area constitutes taxable Cleaning Activity or not - HELD THAT:- The issue is no more res integra. As per the decision of this Bench, in Purba Medinipur Jilla Parishad Vs. CCE, Haldia, [2018 (12) TMI 1780 - CESTAT KOLKATA], following the ratio, the confirmed demand of Rs. 48,35,505/-, under Cleaning Activities, is not legally sustainable. Internal movement of mined material within mining premises by excavators constitutes taxable Cargo Handling services or not - HELD THAT:- It is found that during the period under dispute, the appellants were covered by the case of Sainik Mining and Allied Services Ltd. [2007 (11) TMI 90 - CESTAT, KOLKATA] and could hold bonafide belief that no Service Tax is payable towards internal movement of material under the Cargo Handling Services. Therefore, we set aside the demand of Rs.65,90,069/- confirmed under ‘Cargo Handling Services. Time limitation - HELD THAT:- It is an admitted fact that immediately after the Mining services has been brought under the Service Tax, the Appellant has obtained the Service Tax registration and has been filing their ST-3 Returns Regularly. Therefore, there are no reason for the Department to delay the issue of Show Cause Notice by about three years to issue the Show Cause Notice on 12/10/2010. Therefore, though it is held that on merits the Appellants do not succeed in case of Manpower Supply Services and Commercial Construction Services, it is held that in view of the delayed issue of SCN, the entire confirmed demands are required to be set aside on account of limitation. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the services rendered fall within the taxable categories of 'Manpower Recruitment or Supply Agency' services. 2. Whether the civil works (embankment/wall construction within mining premises) constitute taxable 'Commercial and Industrial Construction' services. 3. Whether the work of removal of silt from a tank located in the mining area constitutes taxable 'Cleaning Activity' under Section 65(24) of the Finance Act, 1994. 4. Whether the internal movement of mined material within mining premises by excavators constitutes taxable 'Cargo Handling' services. 5. Whether the adjudicated demands are barred by limitation because of delay in issuance of the Show Cause Notice. ISSUE-WISE DETAILED ANALYSIS Issue 1: Classification as 'Manpower Recruitment or Supply Agency' services Legal framework: Taxability depends on whether the contract/works order evidences supply of manpower as a service within the statutory definition of manpower recruitment or supply. Precedent treatment: No contrary or special precedent applied by the Tribunal; analysis based on contract terms and statutory category. Interpretation and reasoning: The Work Order expressly provided daily payment and commission structure indicative of manpower deployment. The Tribunal construed the contract language as clearly evidencing supply of personnel (manpower supply). Ratio vs. Obiter: Ratio - where contractual terms demonstrate payment per person/day plus commission, the activity falls within manpower supply services for service tax classification. Conclusion: The demand under 'Manpower Recruitment or Supply Agency' services is sustainable on merits; the appellant's merits-based challenge to this classification is rejected. Issue 2: Classification as 'Commercial and Industrial Construction' services Legal framework: Taxation under Commercial and Industrial Construction depends on whether the civil work falls within the scope of construction of commercial/industrial infrastructure/services as defined in the statute and rulings. Precedent treatment: Assessment based on nature and purpose of work rather than location; Tribunal applied statutory meaning to the facts. Interpretation and reasoning: The embankment/wall construction within the mining premises was performed to fortify embankment for mining operations. The Tribunal treated mining activity as commercial; the civil work directly served commercial mining operations and therefore constituted commercial/industrial construction. Ratio vs. Obiter: Ratio - civil works that directly serve a commercial business activity (here, mining) performed within premises are taxable as commercial and industrial construction services. Conclusion: The confirmed demand under 'Commercial and Industrial Construction' is sustainable on merits; the appellant's challenge is dismissed. Issue 3: Classification as 'Cleaning Activity' under Section 65(24) Legal framework: Cleaning service category applies to activities of cleaning premises, but must be distinguished from excavation/transportation/disposal activities or works integral to industrial processes or waste disposal. Precedent treatment: Tribunal followed its earlier decision (Purba Medinipur Jilla Parishad v. CCE, Haldia) where excavation/transportation/disposal of ash to abandoned mines was held not to be cleaning of premises and therefore not taxable as cleaning service. Interpretation and reasoning: The specific job involved removal of silt from a tank in the mining area arising from waste water of a plant and was characterized as part of mining-related disposal/maintenance rather than routine cleaning of premises. The Tribunal applied the cited ratio to hold the activity outside the cleaning service definition. Ratio vs. Obiter: Ratio - removal/transportation/disposal of industrial waste or silt from process-related tanks for disposal in the course of industrial operations does not amount to 'cleaning activity' under the statutory definition. Conclusion: The demand confirmed under 'Cleaning Activity' is not legally sustainable and is set aside on merits. Issue 4: Classification as 'Cargo Handling' services for internal movement of mined material Legal framework: Cargo handling service category covers handling/loading/unloading/transportation of cargo; the taxability of internal movement within mining premises depends on whether such movement falls within the statutory cargo handling definition or is an inseparable part of mining operations. Precedent treatment: Tribunal relied on its prior decision in Sainik Mining & Allied Services Ltd. (and subsequent followings) which treated internal movement within mining premises as not chargeable under cargo handling; that precedent had later been disapproved by a High Court for a different period but remained the applicable precedent for the period in dispute. Interpretation and reasoning: During the period under scrutiny the appellant could reasonably rely on the Sainik Mining precedent and therefore held a bonafide belief that internal movement of ore by excavators within the mining premises was not taxable as cargo handling. The Tribunal distinguished later adverse High Court authority by temporal application - reliance on the Tribunal precedent was acceptable for the disputed period. Ratio vs. Obiter: Ratio - where established tribunal precedent existed during the relevant period treating internal movement within mining premises as outside cargo handling taxability, taxpayers may legitimately rely on that precedent and demands for the period may be unsustainable. Conclusion: The demand under 'Cargo Handling Services' for the period in question is set aside on the basis that the appellant had a bonafide belief founded on the then-controlling Tribunal precedent; demand is not sustained for that period. Issue 5: Limitation - validity of demand given delayed issuance of the Show Cause Notice Legal framework: Extended-period provisions permit invocation beyond the normal limitation period only where specified statutory conditions are satisfied; delay in issuance of SCN without justification can render demand time-barred. Precedent treatment: Tribunal applied limitation principles and assessed the departmental delay in issuing the SCN approximately three years after tax registration and regular returns were filed. Interpretation and reasoning: The appellant obtained service tax registration immediately after mining services were brought under the levy and filed returns regularly; given this, the Tribunal found no justification for the Department's delay in issuance of the SCN. The Tribunal held that the delayed issuance undermines the Department's claim to assess the earlier period and ordered the confirmed demands to be set aside on limitation grounds. Ratio vs. Obiter: Ratio - where a taxpayer registers and files returns promptly after the taxability of an activity is clarified, and the Department delays issuing a show cause notice for an extended period without justification, demands for the disputed earlier period may be barred by limitation. Conclusion: Despite upholding two specific demands on merits (Manpower Supply; Commercial Construction), the Tribunal set aside the entire confirmed demand on the ground of delayed issuance of the Show Cause Notice; appellant entitled to consequential relief as per law.