2017 (2) TMI 1173 - AT - Service Tax

Services of site formation for the coal mines - whether fall within the category of site formation category or mining services? - Held that - the appellants are involved in services of site formation for the coal mines of South Eastern Coal Fields Ltd. - the appellants do not have work order for any mining of coal. The terms of the contract are clear to the effect that they make the site fit and ready for coal mining. Coal extraction is not the work given to the appellant - service tax with interest upheld. Penalty - Held that - non-payment of service tax in time is due to the fact that service recipient not paying the amount as per contractual arrangement with large number of such contractors - the appellant took up the matter with the service recipient, along with various other contractors involved in same type of work, regarding service tax liability - it is fit case in revoking provisions of Section 80 for waiver of penalties imposed on the appellant - penalties waived. Appeal allowed - decided partly in favor of assessee.

Summary

Issues:
1. Taxability of services provided under the category of "site formation and clearance, excavation and earth moving and demolition service"
2. Applicability of penalties under Section 78, 76, and 77 of the Finance Act, 1994
3. Waiver of penalties due to delayed payment of service tax by the client

Analysis:

Issue 1: Taxability of services provided under the category of "site formation and clearance, excavation and earth moving and demolition service"
The dispute in the case revolved around whether the services provided by the appellant fell under the category of "site formation and clearance, excavation and earth moving and demolition service" for tax purposes. The revenue asserted that the appellant's services to a coal mining company constituted taxable services under this category. The appellant argued that their services were more akin to mining services and should not be taxed under the mentioned category. The Tribunal examined the terms of the contract and found that the appellant's role was in preparing the site for coal mining, not in the actual mining of coal. The Tribunal distinguished the case from those involving composite contracts that included both site clearance and ore extraction. Ultimately, the Tribunal upheld the tax liability on the appellant under the "site formation" category.

Issue 2: Applicability of penalties under Section 78, 76, and 77 of the Finance Act, 1994
Penalties under Sections 78, 76, and 77 of the Finance Act, 1994 were imposed on the appellant along with the tax liability. The appellant sought the waiver of these penalties, arguing that they had discharged the service tax liability in full. The Tribunal considered the circumstances, noting that the appellant, along with other contractors, had approached the client regarding the service tax liability. Due to the client's delayed payment as per the contractual arrangement, the appellant's non-payment was deemed justifiable. Citing a decision of the Hon'ble Gujarat High Court, the Tribunal held that in situations where there was a genuine belief of non-liability to service tax due to the client's actions, and upon prompt payment upon clarification, penalties could be waived. Consequently, the Tribunal waived the penalties imposed on the appellant while upholding the service tax liability and interest in full.

Issue 3: Waiver of penalties due to delayed payment of service tax by the client
The Tribunal considered the appellant's actions in promptly addressing the service tax liability issue with the client and the department. The appellant's efforts to clarify the matter and the subsequent payment upon clarification were taken into account. Relying on the decision of the Hon'ble Gujarat High Court, the Tribunal found that the appellant's situation warranted the waiver of penalties under Section 80 of the Finance Act, 1994. Therefore, the penalties were waived based on the appellant's actions and the circumstances surrounding the delayed payment by the client.

In conclusion, the Tribunal upheld the tax liability on the appellant under the "site formation" category but granted the waiver of penalties under Section 78, 76, and 77 of the Finance Act, 1994 due to the circumstances involving delayed payment by the client and the appellant's actions in addressing the service tax liability promptly.