2016 (2) TMI 873 - AT - Service Tax

Classification of services - Levy of interest and penalty - It merely pleaded that there was no malafide intention in not remitting the tax and therefore, neither interest nor penalty should be levied. - Held that - As the validity of the classification of the service is a factor integral to the legitimacy of levy and collection of tax, we have allowed the miscellaneous application for raising additional grounds and we consider the factual matrix of the Appellant s rendition of service in the context of the two competing services site formation etc. and mining service. On a true and fair construction of the matrix and bouquet of service provided by the Appellant, considered in the light of the two taxable services i.e. site formation on the one hand and mining on the other, and applying the provisions of Section 65A of the Act, the conclusion is compelling that since the essential character of the services provided by the Appellant is mining of Lignite and removal of Over Burdens is an activity incidental to facilitate and effectuate mining of lignite and as the quantum of lignite mined is also, under the schedule of quantities of the agreement between the Appellant and GHCL is predominantly, the contract should be considered in essential character as a contract for mining of lignite. On this reasoning, the service provided by the Appellant to GHCL clearly and undisputedly falls within the ambit of mining service and cannot be classified as site formation etc service. Demand of service tax with interest and penalty set aside.

Summary

Issues: Classification of services for service tax liability, contesting classification in appeal, essential character of services provided, applicability of mining service classification.

The judgment by the Appellate Tribunal CESTAT AHMEDABAD involved an appeal against an Adjudication order confirming a service tax demand and penalties under the Finance Act, 1994, without ordering interest or penalty under Section 77 of the Act. The Appellant did not contest the classification of services during the Adjudication proceedings but raised additional grounds challenging the classification in the appeal. The services provided by the Appellant to a corporate entity predominantly involved mining of lignite, including the removal of Over Burdens, falling under the mining service category introduced in the Act. The Appellant had been remitting service tax under the mining service category since its introduction. The Department initiated proceedings for levy of service tax based on a different classification due to non-filing of returns and non-remittance of tax before the introduction of the mining service category.

The Tribunal allowed the Appellant's miscellaneous application to raise additional grounds as the classification of services was crucial for the legitimacy of tax levy. After considering the factual matrix of the services provided, the Tribunal concluded that the essential character of the services was mining of lignite, with the removal of Over Burdens being incidental to facilitate mining. The Tribunal applied Section 65A of the Act and determined that the contract should be considered primarily as a contract for mining of lignite, not for site formation services. Referring to a previous judgment, the Tribunal established that the service provided by the Appellant fell within the ambit of mining service and not site formation service.

Based on the analysis, the Tribunal invalidated the impugned order, quashing it and allowing the appeal. The judgment emphasized that the services provided by the Appellant were correctly classified as mining services, supporting the Appellant's position. The decision highlighted the essential character of the services in determining the correct classification for service tax liability, ultimately ruling in favor of the Appellant and setting aside the penalties imposed.