Service tax on mining royalty and production-cost payments was not sustainable where the lease predated levy and excise duty had already applied.

Service tax under reverse charge did not arise on royalty and other periodic payments where the mining lease and grant of mining rights were executed before 01.04.2016, because the taxable event was the agreement or provision of the service and later instalments did not create a fresh liability. The Tribunal also held that amounts already forming part of coal production cost, on which excise duty had been discharged in a manufacturing activity, could not be subjected again to service tax. The demand, interest, and penalty were therefore set aside with consequential relief.

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Issues: (i) Whether service tax was payable under reverse charge on royalty and other periodic payments made after 01.04.2016 where the mining lease and grant of mining rights were executed before 01.04.2016. (ii) Whether the same payments could be subjected to service tax when they had formed part of the cost of coal production and the activity amounted to manufacture attracting excise duty.

Issue (i): Whether service tax was payable under reverse charge on royalty and other periodic payments made after 01.04.2016 where the mining lease and grant of mining rights were executed before 01.04.2016.

Analysis: The taxable event for service tax is the provision or agreement to provide the service. Where the agreement granting the right to use natural resources was executed before 01.04.2016, the later amendment to section 66D(a)(iv) of the Finance Act, 1994 did not create a fresh taxable liability merely because consideration or instalments were paid after that date. The mining lease in question had been granted and made effective prior to the levy becoming applicable to such services, and the issue was covered by earlier Tribunal decisions affirmed by the Supreme Court.

Conclusion: The royalty and other periodic payments were not liable to service tax under reverse charge for the period in question.

Issue (ii): Whether the same payments could be subjected to service tax when they had formed part of the cost of coal production and the activity amounted to manufacture attracting excise duty.

Analysis: The extraction of coal was treated as a manufacturing activity and the relevant amounts had already entered the cost of production on which excise duty had been discharged. A levy of service tax on the same incidence would amount to a simultaneous burden on the same activity, which was not sustainable in the statutory framework applied by the Tribunal.

Conclusion: No service tax was exigible on the amounts already subjected to excise duty as part of coal production cost.

Final Conclusion: The demand, interest, and penalty could not be sustained, and the impugned order was set aside with consequential relief.

Ratio Decidendi: For service tax purposes, liability on a service involving grant of mining rights arises with the agreement or provision of the service, not with later instalments of consideration, and a payment already embedded in manufacturing cost and subjected to excise duty cannot be taxed again as a service.

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