2016 (8) TMI 675 - AT - Service Tax

Nature of composite works contract - drilling, cross cutting, conventional raising, ramp excavation, long hole blasting, withdrawal of blasted ore etc. w.r.t. underground mines - mining service - It was contended that, after the introduction of mining as taxable service w.e.f. 01/6/2007, the appellants have discharged service tax on these services. It is not legally sustainable to tax the same activity under different category for different periods unless the pre-existing definition for site formation has been changed to create a new taxable service out of that. - inclusion of value of free items supplied by Hindustan Zinc Limited in the taxable value Held that - in such situation the activities of site formation and clearance are to be treated as an activity ancillary to mining and since the overall contract for mining the contract being indivisible the same should be treated as mining contract. It was also held that w.e.f. 01/6/2007 when the activity of the appellant has been accepted by the Department as mining service, for the period prior to 01/6/2007 the same activity cannot be classified under site formation service. Value of free supply items cannot be held to be charge for services provided by the appellant. Hence following the ratio of decided cases we find the impugned order cannot be sustained on this ground also. Regarding the service tax payable by the appellant under the category of mining services w.e.f. 01/6/07, the admitted fact is that appellants discharged the service tax in full before the issue of show cause notice. - No penalty. Demand set aside - Decided in favor of assessee.

Summary

Issues:
1. Appellant's liability for service tax under different categories for work executed in mines.
2. Inclusion of value of free supply items in taxable value.
3. Appellant's liability for service tax under mining services.

Analysis:

1. The appellant contested the order of the Commissioner of Central Excise, Jaipur - II, regarding the demand of service tax amounting to ?72,73,737 under 'site formation service' and later under 'mining of mineral, oil or gas service'. The appellant argued that the work undertaken was related to mining of ore and not site formation service. They also highlighted that they had already paid service tax under the mining services category post the amendment in 2007. The Tribunal examined the terms of the agreement and previous decisions, concluding that the activities were ancillary to mining, and thus, the demand under site formation service was not sustainable.

2. The issue of including the value of free supply items in the taxable value was addressed by referring to the Larger Bench decisions. The Tribunal followed the precedent set by previous cases, ruling that the value of free supply items cannot be considered as a charge for services provided. Therefore, the impugned order was not sustained on this ground as well.

3. Regarding the service tax liability under mining services from June 2007, the appellant had paid the tax in full before the show cause notice was issued, albeit with some delay. The Tribunal acknowledged the delay but noted that the appellant had admitted the tax liability and paid with interest. The imposition of penalties invoking suppression or fraud was contested by the appellant. The Tribunal agreed that there was no justification for penalties, let alone equivalent amounts, in this case. Consequently, the impugned order was set aside, and the appeal was allowed, upholding the service tax liability under the mining services category from June 2007.

In conclusion, the Tribunal found in favor of the appellant on all grounds, setting aside the demand for service tax under different categories, rejecting the inclusion of free supply items in taxable value, and dismissing the penalties imposed. The service tax liability under mining services from June 2007 was upheld.