2024 (12) TMI 1141 - AT - Service Tax

Mining services agreement ruled taxable despite partnership claims under Section 65(105)(zzzh) Finance Act 1994

CESTAT Hyderabad dismissed the appeal where the appellant contended their agreement with a company was a partnership arrangement exempt from service tax. ... Agreement of partnership or otherwise - Joint Venture (JV) - agreement along with the codicil - nature of service being provided by the appellant to M/s GG was classifiable under ‘Business Support Service’ or is rightly classified as ‘Mining Service’ under Section 65(105)(zzzh) of the Finance Act, 1994 w.e.f. 01.07.2007 - Invocation of exetnded period of limitation. Whether the agreement dt.17.10.2001 along with the codicil can be considered as agreement of partnership or otherwise? - HELD THAT:- There are much force in the contention of the department that this is an agreement between service provider and service recipient and not a partnership agreement, if all the clauses are evaluated holistically. A codicil to the agreement made at a later date, that too unregistered, terming the whole agreement as an agreement of partnership will not be tenable in the light of the fact that the terms and conditions of the agreement dt.17.10.2001 were not changed, except for Income Tax related provisions, since on holistic evaluation of all terms and conditions, it is apparent that it is not an agreement of partnership and thus, there cannot be a service to sell, which appellants are canvassing. Therefore, the agreement dt.17.10.2001 is in the nature of service agreement between M/s GG and the appellant and not a partnership agreement, therefore, there would be liability to discharge Service Tax on the services provided by the appellant to M/s GG. Whether the nature of service being provided by the appellant to M/s GG was classifiable under ‘Business Support Service’ or is rightly classified as ‘Mining Service’ under Section 65(105)(zzzh) of the Finance Act, 1994 w.e.f. 01.07.2007? - HELD THAT:- In the facts of the case, it is absolutely clear that the scope of the work is quarrying and the fact that M/s GG holds a prospecting license for black granite granted by the Director of Mines and Geology, the entire activity is mining activity only and not ‘Business Support Service’ as contended by the appellant. The appellant tried to highlight some of the clauses in their agreement in support that the activities would more appropriately fall within the category of Business Support Service rather than under Mining service as alleged by the Department. Admittedly, they are also raising invoices, jointly fixing sale price, furnishing periodical statements and returns and constructing rest shed, sanitary conveniences, blaster sheds, etc. However, these activities themselves cannot convert the entire quarrying and mining activities into Business Support services. These services are incidental to their mining services and are intrinsically required to be performed in connection with their mining activities in terms and conditions for providing that mining service to M/s GG - thus, the activities would be more aptly covered within the category of ‘Mining service’ and not under ‘Business Support service’ in the given factual matrix. Whether, in the facts of the case, the provisions for invoking extended period if justified or otherwise? - HELD THAT:- While the appellants and M/s GG have entered into an elaborate agreement clearly marking the nature of services to be performed, they have not taken enough care to find out the exact nature of services or taxability and merely because they have furnished certain information or copy of agreement to the department, it would not absolve them from the invocation of extended period in the given facts of the case. The fact that they never disclosed codicil to Department or claimed their services as ‘Business Support services’ and not ‘Mining service’ also supports the view that appellants have not come out with clean hands before the Department. Therefore, there are no reason to interfere with the findings of the Commissioner relating to limitation. Thus, in the present case, the agreement is not that of partnership and is in the nature of service agreement, where the appellants are service provider and are therefore, liable to pay Service Tax - they are providing ‘Mining Services’ and not ‘Business Support Services’ - there is sufficient ground for invoking the extended period for raising the demand - there are no infirmity in the impugned order and therefore any reason to interfere with the Order of the Original Authority. Appeal dismissed. Issues Involved:A. Whether the agreement dated 17.10.2001 along with the codicil can be considered as an agreement of partnership or otherwise.B. Whether the nature of service provided by the appellant to M/s GG was classifiable under 'Business Support Service' or is rightly classified as 'Mining Service' under Section 65(105)(zzzh) of the Finance Act, 1994 w.e.f. 01.07.2007.C. Whether, in the facts of the case, the provisions for invoking the extended period are justified or otherwise.Issue-wise Detailed Analysis:A. Agreement as Partnership or Service Agreement:The primary issue was whether the agreement dated 17.10.2001 between the appellant and M/s GG constituted a partnership or was a service agreement. The agreement was termed as a 'Raising Contract cum Sale Agreement', which involved the appellant undertaking quarrying operations and paying government fees, with a share in the sales proceeds as consideration. The adjudicating authority found that the agreement lacked essential elements of a partnership, such as profit sharing and joint control, and instead, it was a service agreement where the appellant provided services to M/s GG. The codicil dated 28.01.2002, which purported to convert the agreement into a partnership, was not registered and did not alter the nature of the relationship. The authority concluded that the agreement was a service agreement, not a partnership, thereby subjecting the appellant to Service Tax liability.B. Classification of Services:The appellant argued that their activities fell under 'Business Support Service' rather than 'Mining Service'. However, the adjudicating authority noted that the appellant's activities were primarily related to quarrying, which is classified as 'Mining Service'. Despite additional activities like sourcing customers and converting granite, these were deemed incidental to the mining operations. The authority upheld the classification under 'Mining Service', as the primary nature of the work was mining-related, and thus, the appellant was liable for Service Tax under this category.C. Invocation of Extended Period:The issue of whether the extended period for demand was justified was also addressed. The adjudicating authority held that the appellant had not disclosed their service activities to the department, nor had they obtained Service Tax registration. The appellant's failure to clarify the taxability of their services or seek guidance from the department indicated suppression of facts. The authority relied on precedents to justify the invocation of the extended period, as the appellant did not demonstrate a bona fide belief in the non-taxability of their services. Consequently, the extended period for raising the demand was deemed applicable.Conclusion:The tribunal upheld the adjudicating authority's findings, confirming that the agreement was a service agreement, the services were classifiable under 'Mining Service', and the invocation of the extended period was justified. The appeal was dismissed, affirming the Service Tax liability on the appellant.