TaxTMI 
TaxTMI 
2024 (12) TMI 1196
X X X X Extracts X X X X
X X X X Extracts X X X X
....ne for extraction of iron ore on behalf of the mine owners and other for purchase of iron ore. The levy of service tax on Mining Service was introduced w.e.f. 01.06.2007 and the appellant is claimed to be discharging service tax liability on the said service thereafter, on receipt basis, till the year 2010-2011. 2. Consequent to audit of the accounts of The appellant conducted by the Department, it was observed that the extraction of Ore involves the following processes, namely, (i) overburden removal, (ii) raising and stacking, (iii) hiring of pay loaders, (iv) mining, (v) screening, (vi) sampling and analytical study of iron ore, etc. and hence, it appeared that the appellant was engaged in providing 'site formation service' as they were undertaking various activities to prepare the site for iron ore extraction and levy of service tax on such service was introduced from 16.06.2005 and the appellant had not made payment of service tax on provision of such service from June 2005 to May 2007. 3. Secondly, it was observed by the audit that the though the appellant had been paying service tax on the mining service provided by them from 1.06.2007 on receipt basis, since t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t related to raising of iron ore. The notice also proposed to demand interest and to impose penalty under Section 76 and Section 78. The appellant vide their reply dated 22.08.2010 contested the above proposals. 6. The above notice came to be adjudicated by the Commissioner of Central Excise, Chennai II Commissionerate vide his impugned Order-in-Original No. 09/2012 dated 23.02.2012 wherein, the entire demand of service tax along with applicable interest was confirmed and penalty equal to the demand of tax was imposed. The demands in the Order-in-Original has been assailed by the appellant in this appeal. 7. Heard Shri M. Karthikeyan, Ld. Advocate appearing for the appellant, his submissions are summarised as under: - Site Formation Service 8.0 The Levy of Service tax on Site Formation services came into effect from 16.06.2005. Site Formation was defined in Section 2(97a) of the Finance Act 1994 which read as follows: - "(97a) "site formation and clearance, excavation and earthmoving and demolition" includes, - i. drilling, boring and core extraction services for construction, geological or similar purposes; or ii. soil stabilization; or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....posed under Site Formation service for the period prior to 01.06.2007. 8.3 Further, he placed reliance on the following Orders of various Co-ordinate Benches wherein, it has been categorically held that in case of composite contract of mining, which are brought to tax under Mining service post 01.06.2007, tax cannot be levied under Site formation service or any other service for the period prior to the said date by vivisecting the contract. a) G.S.Atwal & Co Engineers Pvt. Ltd. [2023 (6) TMI 310 CESTAT Kolkatta] b) R. K Marketing Services [2022 (4) TMI 517 CESTAT Bangalore] c) Thriveni Earthmovers [2018 (11) TMI 31 CESTAT Kolkatta] d) Balaji Mines & Minerals [2019 (9) TMI 1037 CESTAT Bangalore] e) Hazaribagh Mining & Engineers [2016 (12) TMI 1131 CESTAT Kolkatta] f) Ramakrishna Reddy [2018 (1) TMI 1498 CESTAT Hyderabad] g) Ramakrishna Reddy [2008 (10) TMI 115 CESTAT Bangalore] h) Ramakrishna Reddy SC Order. 8.4 Accordingly, it's his case that in view of the ratio laid down in the above decisions / orders, the demand under site formation service is not at all sustainable. Mining Service 9.0 The Ld. Counsel submitted that there are two demands unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve been raised before 30.6.2011, the point of taxation shall, at the option of the taxpayer, be the date on which payment is received. The TRU letter issued from File F.No. 334/3/2011 dated 28.02.2011 clarified the amendments made as above during the Budget 2011-2012 and Para 6.2 of the said clarification read as follows: - "6.2 Consequential changes have also been made to the Service Tax Rules, 1994 to alter the payment of service tax from receipt of payment to provision of service..." 9.3 He submitted that the appellant had discharged service tax liability on the amount receivables pending as on 31.03.2011 during the year 2011-2012. In support of the same, he has referred to the CA Certificate along with the copies of the balance sheets for the period from 2007-2008 to 2011-2012 and the ST-3 returns filed, from which, it could be seen that they have been carrying forward the mining charges receivable from the mine owners year-on-year basis from 2007-2008 and as on 31.03.2011, the appellant had a balance of the receivable amount at Rs. 17,04,66,648/-. During the year 2011-2012, the appellant had a raising charges income of Rs.40,25,39,421/-. From the ST-3 returns filed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erefore, billing a higher mining charge on one mine owner cannot be made a reason to automatically enhance the value of mining charges in respect of the other mine owner. Further, the appellant is engaged in export of ore and when there is substantial demand for ore and the appellant has committed exports to be made, merely because one mine owner has not agreed for price escalation, they would not be in a position to take any drastic steps which would only be detrimental to their business interest, they would have to pull on in such situations. Hence, difference in the mining charges collected from different mine owners in respect of two different mines located in two different states, due to various business compulsions and highly competitive market, cannot be made a ground for revising or enhancing the value of taxable service. 10.2 He drew our attention to Section 67 of the Finance Act, 1994 which provides for valuation of taxable services and sub section (1) of the said section read as follows during the relevant period of demand: - "67. Valuation of taxable services for charging service tax (1) Subject to the provisions of this Chapter, service tax chargea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceived is not wholly or partly consisting of money, shall be determined by the service provider in the following manner:- (a) the value of such taxable service shall be equivalent to the gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration; (b) where the value cannot be determined in accordance with clause (a), the service provider shall determine the equivalent money value of such consideration which shall, in no case be less than the cost of provision of such taxable service." 10.5 He argued that the value of taxable service shall be determined in terms of the above said Rule only when the consideration received is not wholly or partly consisting of money and it is not the Rule prescribing the manner for determination where the value of taxable service is not ascertainable in terms of clause (iii) of Section 67(1). He submitted that in the instant case, the entire consideration is in money only and it is not the case of the Revenue that the consideration in the instant case is other than money. It is relevant to note that the SCN and t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not received, then there is no requirement to pay tax during the relevant period till 01.04.2011. Only from the said date, Rule 6 was amended to state that tax is required to be paid at the time when the service is deemed to be provided in terms of P.T.R., 2011 However, in terms of Rule 9 of the P.T.R., 2011 if the service has been provided before 31.03.2011 or if the bill is raised before 31.03.2011, then the point of taxation is the date of receipt of payment and as such, for the services provided till 01.04.2011, the service tax is required to be paid only when payment is received. Therefore, even if the value of taxable service is re-determined on the basis of cost of provision of service, unless and otherwise the appellant receives payment towards such enhanced value, there is no liability to pay tax. The enhancement of the value on the basis of cost of provision of service is only for the purpose of service tax assessment, it does not really increase the receivables under the contract with the mine owner and the appellant will never realise any such payment and that therefore, the demand of service tax is not legally sustainable at all and merits to be set aside. 10.8 With....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asis. 10.9 He has placed reliance on the decision of the Hon'ble Supreme Court in the case of Intercontinental Consultants & Technocrats [2018 (10) GSTL (401) SC] which had held as follows: - "24. In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned order. 13.3 With regard to demand of short payment of service tax under 'Mining Service' during the period June 2007 to September 2008, the Special Counsel put forth that the appellant has stated that as and when payments were received, service tax has been paid in terms of Rule 6 of Service Tax Rules, 1994 and the implication of this averment is that payments for the 'Gross amount charged' as per bills was received in subsequent periods and tax has been paid on such receipts in the subsequent period, but the appellant failed to reconcile the large difference between the gross amount charged as per bills and the gross amount declared in the ST3 returns and such payment of tax in the subsequent periods has not been substantiated by the appellant. 13.4 With regard to the payment of service on account of under valuation of above mining service during the very same period, the special counsel contended that the SCN alleged that cost of extraction of iron ore was more than double the income shown as 'raising income' in their balance sheets and invited our attention to Section 67(1)(iii) which provides that "in a case where the provision of service is fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ice": - 15.1 We have perused the agreement dated 15.05.2002 entered for Mining in Nugaon Mines and also the agreement dated 01.09.2002 entered for mining in Thakurani Mines by the appellant and both are composite agreements for mining of iron ore and the consideration for mining is fixed at 'per metric ton' of iron ore mined. There is no separate mention about provision of 'site formation service' or the connected scope or activity in the above contracts. Para 3.1 of the SCN observes that the extraction of ore involves the following processes namely (i) overburden removal, (ii) raising and stacking, (iii) hiring of pay loaders, (iv) mining, (v) screening, (vi) sampling and analytical study of iron ore, etc and hence, it appeared that the appellant was engaged in providing 'site formation service', but there is no such details mentioned anywhere in the agreements. From the expenses incurred by the appellant during the relevant period, the audit appears to have culled out the figures for such site formation activity and proposed to demand service tax. 15.2 The Ld. Adjudicating Authority has considered the activity of site formation independently. From the docume....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Part has agreed to keep the contractor's qualified mining personnel on its pay rolls on terms and conditions including emolument and other allowances as may be decided by the contractor. Such contractor's personnel shall be deemed to be the party of first party employees for all legal effects and purposes. The party of first party shall appoint one of the contractor's person as the "Mines Manager" and/or "Agent for the said Mine, Thakurani Iron Ore Mines. The party of first part shall accordingly notify the Indian Bureau of Mines, the Labour Enforcement Officer, the District Magistrate, the Department of Mines Safety and such other authorities as required under the law. The contractor reserves its right to recall and/or replace all or any of its deputed/loaned personnel at any time and from time to time as it may deem fit and proper, without assigning any reason. However all payment of salaries and other expenditure of deputed personnel mentioned hereinabove shall be borne by the contractor." At this juncture, we find it most appropriate to refer to a recent decision of the Hon'ble Apex court in the case of Commissioner of Service Tax Delhi Vs. Quick Heal Technolog....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hould not be approached on the basis that it is prima facie illegal. 'You are to construe the contract, and then see whether it is legal.' " 55. The sum and substance of the ratio of the case of BSNL (supra) as discernible is that the contract cannot be vivisected or split into two. Once a lump sum has been charged for the sale of CD (as in the case on hand) and sale tax has been paid thereon, the revenue thereafter cannot levy service tax on the entire sale consideration once again on the ground that the updates are being provided. We are of the view that the artificial segregation of the transaction, as in the case on hand, into two parts is not tenable in law. It is, in substance, one transaction of sale of software and once it is accepted that the software put in the CD is "goods", then there cannot be any separate service element in the transaction. ....." [emphasis added by us] Now, it is equally relevant to refer to the determination of classification as prescribed under Sec. 65A of the Finance Act, 1994. The same is reproduced for convenience: "65A. Classification of taxable services - (1) For the purposes of this chapter, classification of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lia explained the scope of Mining service which was proposed to be brought under tax net wherein, it was clearly mentioned that the services provided in relation to mining are comprehensively covered under the proposed service of mining. Further, the case law relied upon by the appellant have decided the issue in question as to whether the site formation activity undertaken incidentally by a service provider in a mining contract is leviable to tax under 'site formation service' for the period prior to 01.06.2007 and the issue is no more res integra. The Co-ordinate Bench at Bangalore held as follows in the case of M. Ramakrishna Reddy [2008 (10) TMI 115 CESTAT Bangalore]: - "10.1 From the above, it is very clear that the salient feature of the services rendered by the appellant is mining. In other words, the appellant is expected not only to remove the overburden but also to excavate the Barytes Ore. We cannot say that the appellant is not undertaking site formation work, but site formation work undertaken by the appellant is incidental to the mining activity. To put it in different words, the essential character of the work undertaken by the appellant is mining or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e co-ordinate benches cited supra and though the dept has preferred appeals in some cases, no stay has been granted in any of the cases. The above decision has been followed by the co-ordinate bench at Hyderabad in the case of M. Ramakrishna Reddy himself, as reported in 2018 (1) TMI 1498-Cestat Hyderabad, Department appears to have preferred an appeal against the said decision also and the same was dismissed by the Hon'ble Supreme Court along with the earlier appeal, on 27.11.2019. 15.7 Under the circumstances, we are of the view that the above issue is settled in favour of the appellant and hence, we find no reason not to follow the above ratio laid down therein and accordingly, we hold that the contract entered into in 2002 by the appellant with the mine owners for raising of ore is a composite mining contract and the alleged activity of 'site formation' is only incidental to the of mining service and hence, the scope of mining contract cannot be vivisected to demand service tax on the incidental activity of site formation. Therefore, the demand confirmed under 'site formation service' for the period from June 2005 to May 2007 is not sustainable and is ordered....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Department counsel wanted to verify the above and furnish a report, no such report has been furnished. From the worksheet annexed to the Chartered Accountant's Certificate which also has been duly certified, it can be seen that the said working contains details of taxable income reflected in the balance sheet for every year starting from 2007-2008 to 2011-2012, amount of income actually realised during the said years and service tax discharged on such realised income. Every year, the balance of unrealised taxable income is arrived at and shown as balance and the same is carried forward as opening balance of the next year. Any realisation against such opening balance as well as the income billed during the year would be accounted as taxable income in the ST-3 returns and service tax was discharged on the same and in a similar manner, the balance of unrealised income would be arrived at and carried forward as opening balance of next year. 16.2 Rule 6 was amended in the year 2011 to levy service tax from receipt basis to accrual/billing basis. However, in terms of proviso to Rule 9 of P.T.R., 2011, the point of taxation for the services provided/invoice raised before 30.06.201....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... value declared in the ST-3/declared in the balance sheet and the service tax paid on the said value has not been deducted and the demand made is overlapping and to this extent the demand confirmed is not legally sustainable. 17.1 The grounds put forth in support of under-valuation in the SCN is recorded in Para 4 and the same has been confirmed in the impugned order. The appellant had entered into contract/agreement with Mine owners in 2002 for raising of iron ore (mining services) and for purchase of entire mined iron ore separately and the agreement contain clauses for fixed escalation in both the mining services agreement as well as purchase of ore agreements. Accordingly, the rates for purchase of ore was revised multifold in the case of both the mines namely, Thakurani Mines and Nuagaon Mines but the rates of mining services got revised more than two fold only in respect Thakurani Mines and in respect of Nuagaon Mines, the rates of mining services remained the same and were never revised. Further, the cost of extraction of iron ore as per the expenses accounted for in the balance sheet was found to be double than the mining charges billed on the mine owners. Accordingly, t....