2018 (7) TMI 98 - AT - Service Tax

Classification of services - appellant were providing services to M/s Rajasthan State Mines and Minerals Ltd. which is the activity of depressurising an aquifer in Mata Sukh Liginte Mines - whether the service classifiable as site preparation and clearance service or mining activity? Held that - It is apparent that appellant was already awarded work of mining activity i.e. of mining lignite from the mines vide an agreement of 27.01.2003. It is during this activity that the appellant noticed a big water aquifer. Though water aquifers are often found in the mines and need simultaneous cleaning while mining but as per appellant, which is not been denied or disputed by the Department, the impugned water aquifer was much bigger water body found within the mine having much large volume of water requiring much more amount of investment to depressurise the same - the sole intention of the subsequent agreement is not the site clearance as per the strict meanings in Section 65(97a) but is the part of the mining activity itself and that the same was entered into with the sole objective of justifying the financial burden upon the appellant. The activity carried out by the appellant was the mining activity which has been identified as taxable activity only beyond 01.06.2007. Hence, the demand for the period prior the said date is absolutely not sustainable - Reliance is also placed on the Circular No. 232/2/2006 E 1-4 dated 12.11.2007 which says that activities as that of excavation, drilling, removal of overburdens, etc. are the essential integral processes and are the part of mining operations and since the mining activity is taxable w.e.f. 01.06.2007, prior to this date such activities being part of mining operations itself are not subject to service tax and as such no service tax is leviable on such activities prior to the said date. The activities for the period beyond 01.06.2007 till 31.03.2008 - Held that - It is observed that though the activities of appellant are no doubt the mining activities but it is observed from the impugned Show Cause Notice that the same has not been so alleged - In Show Cause Notice, the Department has alleged the said activity as that of site clearance. In such circumstances, the principle is well settled that the classification of taxable service which is not alleged in the Show Cause Notice cannot be concluded to support levy of tax. Penalties - Held that - There is no positive act is alleged by the Department which may amount to committing suppression of facts or which may reflect any malafide on part of the appellant with an intention of evading tax. The question of imposition of penalty does not at all arise - penalty not warranted. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Confirmation of demand in the Show Cause Notice
2. Classification of the activity as site clearance or mining activity
3. Tax liability for the period before and after 01.06.2007
4. Penalties imposed on the appellant

Analysis:

Issue 1: Confirmation of demand in the Show Cause Notice
The Order addresses two cross Appeals arising from a common Order confirming the demand in the impugned Show Cause Notice dated 28.09.2010. The Adjudicating Authority confirmed a demand of &8377; 23,40,304/- along with interest and penalties under Section 76, 77, and 78 of the Act. The appellant contested this demand, leading to the Appeals.

Issue 2: Classification of the activity as site clearance or mining activity
The primary contention revolved around whether the activity of depressurising a water aquifer in the mines constituted site preparation and clearance service or mining activity. The appellant argued that the activity was part of the mining operations and not site clearance as defined under Section 65(97a). The Tribunal analyzed the agreements between the parties and concluded that the subsequent agreement was entered into to justify the financial burden on the appellant, indicating it was part of the mining activity.

Issue 3: Tax liability for the period before and after 01.06.2007
The Tribunal determined that the activity carried out by the appellant before 01.06.2007 was mining activity, which became taxable only after 01.06.2007. Therefore, the demand for the period before this date was deemed unsustainable. For the period after 01.06.2007, the Tribunal noted that the Department had alleged the activity as site clearance in the Show Cause Notice, contrary to it being mining activity. The Order was set aside on this ground as the classification not proposed in the Show Cause Notice cannot support the levy of tax.

Issue 4: Penalties imposed on the appellant
Regarding the penalties imposed, the Tribunal held that since the mining activity was not taxable before 01.06.2007, there was no suppression of facts or malafide intent on the part of the appellant. Therefore, the imposition of penalties was deemed unjustified and set aside.

In conclusion, the Tribunal allowed the Appeal of the appellant, holding that there was no liability to be discharged for the services rendered as per the Order under challenge. The Appeal of the Department was rejected, and the penalties imposed were set aside.