Partnership profit-sharing for mine operations was not a taxable mining service under service tax law.

The activity of extracting iron ore and operating a mine by one partner under a partnership arrangement was treated as internal firm business, not as a service rendered to another person. The partner was entrusted with extraction and mine operations and received 64% of the extracted ore as its share of profit. That receipt was characterised as profit-sharing rather than consideration for a taxable service. On that basis, the activity did not fall within the scope of taxable "Mining of Mineral, Oil or Gas Services", and the service tax demand could not be sustained.

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Issues: Whether the activity of extracting iron ore and operating the mine, undertaken by one partner under a partnership arrangement and compensated by a share in the extracted ore, constituted a taxable service under "Mining of Mineral, Oil or Gas Services".

Analysis: The dispute turned on whether the appellant rendered a service to the partnership firm or merely carried out the business of the firm as a partner. The arrangement showed that the appellant, being one of the partners, was entrusted with extraction and operation of the mine and was entitled to retain 64% of the extracted ore as its share of profit. Such an arrangement was treated as an internal partnership arrangement and not as a contract for rendering service to another person. The receipt of ore was therefore in the nature of profit-sharing and not consideration for a taxable service. On that footing, the activity did not fall within the charge of service tax under the alleged taxable category.

Conclusion: The activity was not liable to service tax as a taxable mining service, and the demand could not be sustained.

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