2019 (7) TMI 1701 - AT - Service Tax

Classification of services - mining services or Business Auxiliary Services? - activity of beneficiation of coal - According to the Department this would fall under the category of BAS prior to 1 June, 2007, while according to the appellant it is in relation to mining and, therefore, taxable with effect from 1 June, 2007 only. HELD THAT - This issue was examined at length by a Division Bench of the Tribunal in Aryan Energy 2008 (5) TMI 248 - CESTAT BANGALORE . The appellant therein was also engaged in the activity of beneficiation of coal on behalf of the KPCL. The Adjudicating Authority classified the said activity under BAS. The Division Bench of the Tribunal observed that the said activity would be covered under mining services with effect from 1 June, 2007 and Service Tax could not be levied under BAS for any period prior to 1 June, 2007. In the instant case, the definition of BAS did not undergo any change when a new service in relation to mining was introduced with effect from 1 June, 2007. The Department admits that with effect from 1 June, 2007, the activity carried out by the appellant is covered under the category of service in relation to mining. This activity could not, therefore, have been categorized under BAS prior to 1 June, 2007 - the demand of Service Tax in the impugned order under BAS from 16 June, 2005 to 30 May, 2007 is not justified. It has been considered necessary to examine the aforesaid approach of the Principal Commissioner as Orders of the Adjudicating Authorities or the first Appellate Authority are coming before the Tribunal in which the binding decisions of the Tribunal are being ignored and a contrary view is taken either for the reason stated in the aforesaid Order of the Principal Commissioner or for the reason that the Department has not accepted the decision of the Tribunal as it had filed an appeal before the High Court or the Supreme Court. Whether the reimbursements received by the appellant from the customers towards transportation charges, railway freight can be included in the taxable value? - HELD THAT - Section 67 of the Act was considered and explained by the Supreme Court in Union of India and Others v. Intercontinental Consultants and Technocrats Private Limited 2018 (3) TMI 357 - SUPREME COURT . The appellant therein was providing consulting engineering services. It received payment not only for the services provided by it but was also reimbursed for the expenses incurred by it on air travel, hotel stay, etc. It paid Service Tax on the amount received by it for services rendered to its clients but did not pay any Service Tax in respect of expenses incurred by it which were reimbursed by the clients. A show cause notice was issued to it to explain why Service Tax should not be charged on the gross value including reimbursable and out of pocket expenses. The provisions of Rule 5(1) of the Rules were resorted to for this purpose by the Department. The Service Tax is on the value of taxable services and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the Service Tax. It is for this reason that the Supreme Court observed that the expression such occurring in Section 67 of the Act assumes importance. It is in this context that the Supreme Court observed in Paragraph 26 that the authority has to find what is the gross amount charged for providing such taxable services and so any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as the amount is not calculated for providing such taxable service . This according to the Supreme Court is the plain meaning attached to Section 67 either prior to its amendment on 1 May, 2006 or after this amendment and if this be so, then Rule 5 went much beyond the mandate of Section 67. The Supreme Court, therefore, held that the value of material which is supplied free by the service recipient cannot be treated as gross amount charged as that is not a consideration for rendering the service. The reimbursement charges could not have been included in the taxable value - the order passed by the Principal Commissioner confirming the demand for the reimbursement charges, therefore, needs to be set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of the activity of beneficiation of coal under Business Auxiliary Service (BAS) or Mining Service.
2. Inclusion of reimbursements in the taxable value.
3. Judicial propriety and adherence to binding decisions of higher authorities.
4. Invocation of extended period of limitation.

Issue-Wise Detailed Analysis:

1. Classification of the Activity of Beneficiation of Coal:
The appellant entered into an agreement with KPCL for washing of coal, known as beneficiation. Initially, the appellant paid Service Tax considering it a service 'in relation to mining' under Section 65(105)(zzzy) of the Finance Act, 1994 from 1 June 2007. However, a show cause notice was issued stating that the activity should be classified under 'business auxiliary service' (BAS) from 16 June 2005. The Principal Commissioner confirmed this classification, stating that the activity involved 'processing of goods for or on behalf of the client' and thus fell under BAS prior to 1 June 2007. The appellant argued that beneficiation of coal is part of mining activity and should be taxable only from 1 June 2007 under the mining services category. The Tribunal in Aryan Energy, Aryan Coal, and Spectrum Coal had held that beneficiation of coal is a mining activity taxable only from 1 June 2007. The Principal Commissioner, however, did not follow these decisions, citing that the Supreme Court had kept the question of law open. The Tribunal held that the classification of beneficiation of coal under BAS prior to 1 June 2007 was not justified and set aside the demand.

2. Inclusion of Reimbursements in the Taxable Value:
The Principal Commissioner included reimbursements received by the appellant from customers towards transportation charges and railway freight in the taxable value for the period from 1 June 2007 to 31 March 2009. The appellant contended that reimbursements should not be included in the value of taxable services. The Tribunal referred to the Supreme Court's decision in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., which held that reimbursable expenses cannot be included in the taxable value as they are not part of the consideration for the service rendered. Consequently, the Tribunal set aside the demand for the reimbursement charges.

3. Judicial Propriety and Adherence to Binding Decisions:
The Principal Commissioner ignored the binding decisions of the Tribunal in Aryan Energy, Aryan Coal, and Spectrum Coal, citing that the Supreme Court had kept the question of law open. The Tribunal emphasized that judicial discipline requires lower authorities to follow binding decisions of higher authorities unless overturned or stayed by a competent court. The Tribunal criticized the Principal Commissioner for exceeding his jurisdiction and making uncalled-for comments on the Supreme Court's order. The Tribunal reiterated the importance of following binding decisions to avoid undue harassment to assessees and maintain order in the administration of tax laws.

4. Invocation of Extended Period of Limitation:
The appellant argued that the extended period of limitation could not have been invoked. The Tribunal did not explicitly address this issue in the judgment, focusing instead on the classification of services and inclusion of reimbursements in the taxable value.

Conclusion:
The Tribunal set aside the impugned order dated 29 May 2015, holding that the activity of beneficiation of coal could not be classified under BAS prior to 1 June 2007 and that reimbursements could not be included in the taxable value. The appeal was allowed, emphasizing the need for judicial propriety and adherence to binding decisions.