2024 (12) TMI 670 - AT - Service Tax

Mining partner receiving 64% ore share not liable for service tax on profit-sharing arrangement

M/s. BMM Ispat Limited Versus Commissioner of Central Excise, Customs and Service Tax, Belgaum

M/s. BMM Ispat Limited Versus Commissioner of Central Excise, Customs and Service Tax, Belgaum - TMI Issues Involved:1. Classification of the activity of extracting iron ore as a taxable service under 'Mining of Mineral, Oil or Gas Services.'2. Applicability of service tax on the appellant's activities.3. Determination of whether the appellant's share of extracted ore constitutes consideration for services rendered.4. Interpretation of partnership agreements in the context of service tax liability.5. Application of the extended period of limitation and imposition of penalties.Issue-wise Detailed Analysis:1. Classification of the Activity:The central issue was whether the appellant's activities of extracting ore, operating the mine, and exercising rights under a mining license constituted a taxable service under 'Mining of Mineral, Oil or Gas Services' as per Section 65(105)(zzzy) of the Finance Act, 1994. The appellant argued that the activity was manufacturing, not a service, as iron ore is classified under Chapter 26 of the Central Excise Tariff, attracting a NIL duty rate. The appellant further contended that the activity was part of a partnership agreement and not a service rendered to an external party.2. Applicability of Service Tax:The appellant contended that since they were a partner in the firm, the activity did not constitute a service liable to tax. They argued that the consideration received was a share of profits, not a service fee. The Revenue, however, maintained that the activity fell within the taxable service category and was subject to service tax.3. Determination of Consideration:The appellant received 64% of the extracted ore, which they argued was a share of profits rather than consideration for services. The Revenue argued that this constituted consideration for the service of ore extraction, and thus, service tax was applicable. The Tribunal found that the 64% share was indeed a profit share, not consideration for services, aligning with the appellant's argument.4. Interpretation of Partnership Agreements:The Tribunal examined the partnership deed and subsequent agreements, concluding that the appellant's activities were internal to the partnership and did not constitute an external service. The Tribunal referenced the Gujarat High Court's decision in Cadilla Healthcare Ltd., which supported the view that internal agreements between partners do not amount to service provision for tax purposes.5. Application of Extended Limitation and Penalties:The Revenue invoked the extended period of limitation, arguing suppression of facts by the appellant. The Tribunal, however, found no merit in the Revenue's argument, as the appellant's activities were part of a partnership agreement, and the appellant was not liable for service tax on these activities. Consequently, the Tribunal set aside the demand and penalties imposed by the Commissioner.Conclusion:The Tribunal concluded that the appellant's activities did not constitute a taxable service under the specified category, as the activities were part of a partnership agreement and the appellant's share was a profit share, not consideration for services. The appeal was allowed, and the impugned order was set aside, providing relief to the appellant.