TaxTMI 
TaxTMI 
2025 (1) TMI 630
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....2. Service Tax Appeal No. 51735 of 2021 is filed by M/s Prism Johnson Ltd. [PJL] to assail the demand of service tax of Rs.11,25,04,719/- with interest and penalties under Sections 77 and 78 (1) of the Finance Act, 1994 [The Finance Act]. 3. Service Tax Appeal No. 51737 of 2021 is filed on him under Section 78A of the Finance Act. 4. Service Tax Appeal No. 51738 of 2021 is filed by Shri Ashish Hinger [Ashish] Function Head Finance to assail penalty of Rs. 1,00,000/- imposed on him under Section 78A of the Finance Act. 5. Service Tax Appeal No. 51739 of 2021 is filed by Shrawan Kumar Pathak [Shrawan] the mine owner, to assail penalties of Rs. 10,000/- under Section 77(1)(c) and Rs.10,000/- under Section 77(2) of the Finance Act [The Finance Act The Finance Act. 6. Service Tax Appeal No. 51740 of 2021 is filed by Manish Bhatia [Manish] Chief Finance Officer of PJL to assail penalty of Rs. 1,00,000/- imposed on him under Section 78A of the Finance Act. 7. Excise Appeal No. 51730 of 2021 is filed by PJL to assail the denial of CENVAT credit of Rs. 7,70,01,957/- and order for its recovery along with interest under Rule 14 of CENVAT Credit Rules, 2004[CCR] and imposit....
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....affidavit along with his application for transfer of the mining lease specifying therein the amount that he has already taken or proposes to take as consideration from the transferee. (b) the transfer of the mining lease is to be made to a person or body directly undertaking mining operations. (2) Without prejudice to the above provisions, the lessee / lessees may, subject to the conditions specified in the proviso to Rule 35 of said Rules transfer this lease or any right, title or interest therein to a person holding a certificate of approval and an income tax clearance certificate from the Income tax officer concerned on payment of a fee of rupees one hundred to the State Government. Provided that the lessee / lessees shall make available to the transferee the original or certified copies of all plans of abandoned working in the area and in a belt 65 metres wide & surrounding it. (Provided further that where the mortgage is an institution or a Bank or a cooperation specified in schedule V it shall not be necessary for any such a Institution or Bank or Co-operation to hold the said Certificate of Approval and the said income-lax clearance certif....
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.... 19. It is held in the impugned order that PJL had fraudulently availed and utilized CENVAT credit of Rs.7,70,01,957/- on the strength of invoices issued by ART but the services rendered by ART were not 'input services' as per Rule 2(l) of CCR for manufacture of cement and therefore, it is liable to be recovered under Rule14 of CCR read with Section 11A of the Excise Act. 20. In the impugned order, the Commissioner decided as follows: (i) PJL (Noticee No. 1 in SCN) undertook the mining operations for and on behalf of Shrawan (Noticee No. 5) at Ramasthan Mines and not for itself. (ii) PJL gave an amount of Rs. 6 crores to Shrawan merely as an advance against the assured future sale of limestone after its extraction. There was no sale of the entire limestone of the mine by Shrawan to PJL. It was purchased by issuing purchase orders periodically to Shrawan over 10 years who, in turn, issued bills or invoices for the limestone charging VAT thereon and the said sale took place after its delivery at the crushing side of PJL being a sale on FOR basis. (iii) PJL rendered taxable services of mining of limestone to Shrawan but had not paid appropriate s....
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....iny and examination of the contract as above it is clear that the limestone was sold by Shrawan to PJL and the services of PJL were not taken for mining with Shrawan. Thus, the mine was a captive mine of PJL; (iv) No taxable service was rendered by PJL to Shrawan and, therefore, no invoice was also raised by PJL; (v) Extended period of limitation was not correctly invoked because PJL was registered with the Central excise department for manufacture of cement was audited several times; (vi) In view of above the demand of service tax and interest and penalty cannot sustained; (vii) Consequently, the personal penalty imposed on Ashish, Manish and Pradeep also need to be set aside. Submissions on behalf of the Revenue 22. Learned special counsel for the department vehemently supported the impugned order and asserted as follows: (i) The uncontroverted facts of the case are that Shrawan was the mining lease holder of the mines and had mining and ownership right on the limestone excavated from it; (ii) PJL entered into agreement with Shrawan where PJL was required to undertake all activities related to excavation of l....
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....ease to PJL and also sold the entire limestone to PJL through the three agreements viz., (a) Operator agreement; (b) Commercial agreement; and (c) Agency agreement. The Operator Agreement required PJL to conduct the mining operations in the mine. The Commercial Agreement was for sale of the limestone to PJL. The Agency Agreement was between Shrawan and two others who acted as agents and PJL whereby the agents agreed to facilitate purchase of the land from owners of land by PJL.PJL got the limestone mined using the services of ART and used the limestone to manufacture cement. Therefore, according to the appellants, PJL had not rendered any services to Shrawan but it had rendered the services to itself because it was the captive mine of PJL and therefore, no service tax is payable. 26. The question, therefore, is whether PJL had mined the limestone for itself or it had rendered mining services to Shrawan. To answer this, we must first look at relevant legal provisions. As per article 246, Parliament can make laws with respect to Union List and the State can make laws with respect to State List. Regulation of Mines and Mineral development, to the extent to which such regulation and....
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....ernment may, by notification in the Official Gazette, declare to be a minor mineral; 30. Section 4 of the MMD Act prohibits reconissance, mining or prospecting except under a licence issued under the Act. It reads as follows: "4. Prospecting or mining operations to be under licence or lease.―(1) No person shall undertake any reconnaissance, prospecting or mining operations in any area, except under and in accordance with the terms and conditions of a reconnaissance permit or of a prospecting licence or of a exploration licence or, as the case may be, of a mining lease, granted under this Act and the rules made thereunder: ******" 31. Sections 5 to 13 provide for various regulations and restrictions on mines and minerals. Section 14 takes quarry leases, mining leases or other mineral concessions in respect of minor minerals out of the ambit of sections 5 to 13. Section 15 places quarry leases, mining leased and other mineral concessions in respect of minor minerals squarely within the control of the State Government. 32. Sections 14 &15 read as follows: "14. Sections 5 to 13 not to apply to minor minerals.―The provisions of sections 5 ....
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....t be transferred without the permission of the State Government. No licence was issued to PJL with respect to these mines nor is there any permission of the State Government to Shrawan to transfer his licence. 37. The three agreements nowhere indicate that the licence to mine was transferred to PJL. On the other hand, paragraph II B of the Operator Agreement clearly spells out the nature of the relationship between Shrawan(referred to as Lessee in the agreement) and PJL (referred to company in the agreement). It reads as follows: "II B. APPOINTMENT AS OPERATOR LESSEE hereby appoint the Company, and declare that simultaneously upon execution of this Agreement, the Company shall be and become, the sole and exclusive operating and raising contractor for the Mining Area to exclusively carry out, inter-alia, mining operations in the Mining Area and to excavate / extract and / or remove Lime Stone from the Mining Area for and on behalf of LESSEE, for the entire balance lease period or period of ML Agreement including renewal thereof, whichever is higher or during such extended period thereafter as may be mutually agreed between the parties. The appointment s....
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.... that what was paid was only an advance and the sale of individual consignments took place when purchase orders were placed from time to time by PJL on Shrawan and the consignments were dispatched. Individual invoices showed the date and time of delivery. All invoices indicated that sale was on FOR destination basis at the crushing plant of PJL. 41. We have perused the purchase orders and invoices and also the amount paid in advance. Had the entire limestone been sold, as per the agreement, to PJL, the question of PJL issuing purchase orders and paying against individual invoices does not arise because it would have been the property of PJL and there would have been no occasion for Shrawan to sell it to PJL. We find, as a matter of fact, based on the documents available, that purchase orders were placed and invoices were issued for sale of limestone on FOR destination basis, the destination being the crushing plant of PJL. Therefore, the amount paid in advance under the Agreement can only be treated as an advance. 42. We have perused the invoices under which the limestone was sold to PJL which clearly show a far lower price than the market price, as discussed in the impu....
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....ervice tax would be revenue neutral, and if so, could this be taken as a factor. We find that the services were rendered by PJL to Shrawan whose final product was limestone which was an exempted good. Shrawan was not rendering any service. Thus, the service tax which PJL had to pay would have had to be borne by PJL or Shrawan. Shrawan could not have availed credit of the service tax, if it was paid, because its final product- limestone- is an exempted good. 48. In view of above, we find that demand of service tax from PJL along with interest and penalties need to be sustained. 49. Pradeep was the Manager Accounts of PJL at the relevant time and hence was a key operator of the appellant firm and in the impugned order penalty has been imposed on him under Section 78A of the Finance Act. Section 78A is as follows: "SECTION 78A.Penalty for offences by director, etc., of company - Where a company has committed any of the following contraventions, namely :- (a) evasion of service tax; or (b) issuance of invoice, bill or, as the case may be, a challan without provision of taxable service in violation of the Rules made under the provisions of this Chapter; ....
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.... had received services and penalty of Rs. 10,000 was imposed on him each under Sections 77 (1)(c) and 77(2) of the Finance Act. We find no reason to interfere with these penalties imposed on Shrawan. 54. The impugned order, therefore, needs to be sustained insofar as it pertains to confirmation of demand of service tax with interest from PJL and imposition of penalties on PJL, Pradeep, Ashsih, Manish and Shrawan under the provisions of the Finance Act. CENVAT Credit 55. The second issue in the impugned order pertains to PJL taking CENVAT credit of the Service Tax paid by ART on the invoices for services which it had rendered to PJL. The final product manufactured and cleared by PJL is Cement. It is the case of the Revenue that the services rendered by ART do not qualify as 'input services' for manufacture of cement. Therefore, such 'wrongly availed CENVAT credit' was denied and ordered to be recovered in the impugned order along with interest and penalties. Rule 2(l) of CCR, as it is stood during the relevant period, reads as follows: "(l) ―input service means any service, - (i) used by a provider of output service for providing an o....
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....adhya Pradesh granted the mining lease to Shrawan stipulating that it cannot be transferred without consent of the Government. We have already found that it was not transferred and the lease continued to be with Shrawan. Therefore, Shrawan alone was authorized to mine limestone, which he could do by himself or using contractor 59. Shrawan entered into an Operator Agreement with PJL and thereby used its services to mine the limestone. PJL, thus, acted as a contractor of Shrawan and provided mining services to it. PJL, in turn, hired ART to mine and transport the limestone. Thus, ART was the sub-contractor of PJL and provided services to PJL as such. This chain of services from ART to PJL and PJL to Shrawan comes to an end at with Shrawan who held the lease of mining and did not render any service to anybody else. Using the services of PJL (rendered through its sub-contractor ART), Shrawan raised limestone and sold it. The undisputed legal position is that limestone was not excisable and no duty was payable on it. Since no excise duty was payable, Shrawan could not take any CENVAT credit of any excise duty paid on inputs or service tax paid on input services. Such duties and servi....
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....e to the department the details of the invoices or services on which credit was taken. It was open to the officer who is mandated to receive the ER1 return to call for further information and details and if he had sought and PJL had concealed the details, it would have been a different case. Nothing in the records suggests that the officer scrutinizing the Returns had sought any information which was not given. Therefore, PJL had no obligation to disclose the details which it is said to have not disclosed. This cannot be termed suppression of facts to invoke extended period of limitation. 64. Insofar as the excise part of the impugned order is concerned, PJL was registered with and it had been filing ER 1 returns and therefore, we find no ground to invoke extended period of limitation. Therefore, denial of CENVAT credit and order of its recovery under Rule 14 of CCR can only be confined to the normal period of limitation. The demand for extended period of limitation needs to be set aside. 65. Penalty under Section 11AC read with Rule 15 of CCR was also imposed in the impugned order for the same reason, i.e., PJL had not disclosed the details of services on which it had a....
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....26(2)(ii) of Excise Rules. The ineligible CENVAT credit was evidently taken by PJL on the strength of the service tax invoices issued by ART. There is no dispute that ART had provided services to PJL, issued tax invoices and paid service tax on such services. Therefore, there was nothing improper, let alone illegal or irregular in ART issuing such invoices to PJL. In fact, it was required to pay service tax and issue invoices. The fact that PJL used such invoices to take CENVAT credit wrongly treating it as an input service for manufacture of cement is an altogether different matter. Neither the issue of invoices by ART was incorrect nor can Pradeep, Manish and Ashish be accused of abetting issue of such an invoice. Clearly, the penalties imposed on them under Rule 26(2)(ii) of Excise Rules cannot be sustained and need to be set aside. 68. To sum up: a) Shrawan was and continued to be the lease holder of Ramasthan mines and this lease was neither consented to be transferred by the Government of MP, nor was it actually transferred to PJL. b) Under the Operator Agreement, PJL provided mining services to Shrawan. c) Instead of paying PJL for its serv....