2009 (7) TMI 123 - AT - Service Tax

Site Formation section 65(97a) - agreement was for hiring of HEMM for excavating (including drilling in all kinds of strata/overburden), loading into tippers, transportation and unloading the excavated materials and silt, dumping, dozing, scrapping/removal of bands, preparation/maintenance of haul road, water sprinkling and spreading of material at the site of SECL - The work involved Making blast holes by drilling earth, preparation of faces and excavation of various rocks/earth cutting (consisting of top soils, alluvium soils, blasted rocks etc.), loading and transportation of excavated earth, dumping, dozing and levelling at dump site using suitable machines held that - Site Formation for constructing a dam is exempted from service tax under the law. The circular and notification relied upon by both the sides need to be examined thread bare to test whether the various activities of site formation have given rise to a dam or an Ash Dyke matter need to reexamined remanded back

Issues Involved
1. Service tax demand on "Site Formation" services.
2. Service tax demand on "Cargo Handling" services.
3. Recovery of interest on unpaid service tax.
4. Imposition of penalty under section 78 of the Finance Act, 1994.

Detailed Analysis

1. Service Tax Demand on "Site Formation" Services
The appellant was charged with a service tax demand of Rs. 1,59,68,674 for "Site Formation" services, under sections 66 and 68 of the Finance Act, 1994. The investigation revealed that the appellant was engaged in activities such as excavation, earthwork, and preparation of sites for open cast mines and construction of Ash Dyke. The adjudicating authority concluded that these activities fell under the taxable category of "Site Formation" services. The appellant argued that the construction of the Ash Dyke should be classified as a "dam," which is exempt from service tax under Notification No. 17/05-ST. However, the authority held that an Ash Dyke is not a dam and therefore does not qualify for the exemption.

2. Service Tax Demand on "Cargo Handling" Services
A service tax demand of Rs. 6,72,143 was confirmed for "Cargo Handling" services. The appellant had entered into agreements involving the loading, transportation, and unloading of materials, which were deemed taxable under this category. The appellant contended that these activities were part of transportation services and should not be classified as cargo handling. The adjudicating authority disagreed, stating that the activities involved handling cargo beyond the mine area, thereby falling under the taxable category of "Cargo Handling" services.

3. Recovery of Interest
The adjudicating authority directed the recovery of interest on the unpaid service tax from the due date until actual payment, as per section 75 of the Finance Act, 1994. This was a consequential order following the confirmation of service tax demands.

4. Imposition of Penalty
A penalty of Rs. 1,66,40,817 was imposed under section 78 of the Finance Act, 1994, for non-payment of service tax. The appellant's failure to discharge its service tax liability on the gross amount charged to its clients led to this penalty.

Tribunal's Findings and Directions
The Tribunal found that the adjudicating authority had not adequately examined whether the activities related to the Ash Dyke construction could be classified as a "dam." The Tribunal emphasized the need to scrutinize the nature, purpose, and characteristics of a "dam" in light of relevant circulars and notifications. It was also noted that the adjudicating authority did not consider these circulars and notifications while passing the order.

Regarding the "Cargo Handling" services, the Tribunal referred to previous decisions that defined the scope of such services. Given the importance of determining whether the activities constituted "Cargo Handling" or not, the Tribunal decided to remand both issues back to the original adjudicating authority.

Conclusion
The Tribunal remanded the matter to the original adjudicating authority for a re-examination of both issues: whether the site formation activities resulted in a "dam" or an "Ash Dyke" and whether the activities constituted "Cargo Handling" services. The adjudicating authority was directed to pass a reasoned and speaking order after granting a fair opportunity to both parties to resolve the dispute.

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