2008 (5) TMI 248 - AT - Service Tax

Washing of raw coal with water (beneficiation) - contention of the appellant that the activity of washing of coal is an integral part of mining of coal and it is not covered under Business Auxiliary Services, is acceptable since beneficiation is a process which enhances quality of the coal, it does not amount to production of coal - As processing has been included in Business Auxiliary Services only from 16-6-05, Tax liability will arise only from that date assessee s appeal allowed

Issues Involved:
1. Classification of the appellant's activities under "Business Auxiliary Services."
2. Applicability of service tax on the washing of coal.
3. Invocation of the longer period for demand under Section 73(i) of the Finance Act.
4. Penalty under Sections 76 and 78 of the Finance Act.

Issue-wise Detailed Analysis:

1. Classification of the appellant's activities under "Business Auxiliary Services":
The appellants are engaged in washing raw coal, known as beneficiation, and providing auxiliary services such as coordination with SCCL, bill preparation, and permits. The Revenue classified these activities under "Business Auxiliary Services" and demanded service tax. The appellants argued that washing coal is integral to mining, referencing statutory provisions and Supreme Court decisions (Bharat Coking Coal Ltd. v. State of Bihar and State of West Bengal v. Kesoram Industries). The Tribunal concluded that washing coal is part of mining, which was taxable as a service only from 1-6-2007. Therefore, the activities could not be taxed under "Business Auxiliary Services" for the period prior to this date.

2. Applicability of service tax on the washing of coal:
The appellants contended that washing coal is a mining activity and not liable to service tax under "Business Auxiliary Services" before 1-6-2007. The Tribunal agreed, noting that beneficiation of coal is recognized as part of mining in various statutes and Supreme Court judgments. The Tribunal further stated that beneficiation does not amount to production but is a process enhancing coal quality. The amendment to include processing in "Business Auxiliary Services" took effect from 16-6-2005. Thus, service tax liability, if applicable, would only arise from that date.

3. Invocation of the longer period for demand under Section 73(i) of the Finance Act:
The demand covered the period from 10-9-2004 to 31-8-2005. The appellants argued that they believed their activities were not liable to service tax and hence did not register or pay the tax. The Tribunal observed that the appellants' activities were part of mining and not taxable under "Business Auxiliary Services" before 1-6-2007. Consequently, the Tribunal did not delve into the longer period invocation, as the primary issue was resolved in favor of the appellants.

4. Penalty under Sections 76 and 78 of the Finance Act:
The Adjudicating Authority had imposed penalties under Sections 76 and 78 of the Finance Act. However, since the Tribunal concluded that the appellants' activities were part of mining and not taxable under "Business Auxiliary Services" for the relevant period, the penalties were also set aside. The Tribunal allowed the appeal with consequential relief, negating the need for penalties.

Conclusion:
The Tribunal held that the beneficiation of coal is part of mining and not liable to service tax under "Business Auxiliary Services" for the period prior to 1-6-2007. The appeal was allowed with consequential relief, and the impugned order was not sustained. The Tribunal did not address the valuation of the service liable to service tax due to its primary conclusion.

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