2019 (3) TMI 864 - AT - Service Tax

Classification of services - Hiring of Heavy Earth Moving Equipment - Whether the activity performed by the appellant would fall under the category of Site formation services ? - Held that - On a reading of section 65 (105) (zzza) and the definition of site formation contained under section 65 (97a) and the budget letter dated 27 July, 2005, there is no manner of doubt that the service referred to is prior to the actual activity of mining. Drilling, boring and core extraction services for construction of geophysical, geological or similar purpose is carried out to determine the feasibility for digging any mine prior to mining and it is this service on which service tax is sought to be levied under section 65 (105) (zzza) - It is not the case of the department that the activity that was carried out by the appellant was prior to mining - In such circumstances, it is not possible to accept the contention of the Department that the services would fall under the category of Site Formation . Classification of services - Transportation of Limestone - Cargo Handling Service or Good Transportation Agency Service? - Held that - The composite service may include various intermediary and ancillary services such as loading/ unloading, packing / unpacking etc. provided in the course of transportation of goods by road. These services are not provided as independent activity but as means of successful implementation of the principal service, namely the transportation of goods by road. It has, therefore, been clarified that a composite service even if it consists of more than one service, should be treated as a single service based on the main or principal service. It has, therefore, been held that any ancillary / intermediate service provided in relation to transportation of goods, and the charges, if any, for such services are included in the invoice issued by the Goods and Transport Agency and not by any other person. Such service would form part of Goods and Transport Agency Service and , therefore, the abatement of 75% would be available on it - It is apparent that the essential feature of the service is transportation. Loading and unloading are ancillary / intermediate service provided in relation to transportation of goods, and such service would be Goods and Transport Agency Service. It cannot be Cargo Handling service as was found by the Commissioner. Valuation - inclusion of cost of diesel in assessable value - Held that - The cost of diesel cannot be included in the gross amount since it has been supplied free of cost by the service recipient. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of services under "Site Formation and Clearance, Excavation and Earth Moving and Demolition Services."
2. Classification of services under "Cargo Handling Services" or "Goods Transportation Agency Services."
3. Inclusion of the value of free diesel in the taxable value.
4. Invocation of the extended period of limitation and imposition of penalties.

Issue-wise Detailed Analysis:

1. Classification of Services under "Site Formation and Clearance, Excavation and Earth Moving and Demolition Services":

The primary issue was whether the activities performed by the appellant fell under the category of "Site Formation and Clearance, Excavation and Earth Moving and Demolition Services" as defined under section 65(105)(zzza) of the Finance Act, 1994. The Commissioner had found that the appellant's activities, including excavation of limestone and maintenance of the site, extended beyond mere supply of equipment and involved specialized activities like maintaining floor levels, deploying dozers, and compliance with various laws. However, the Tribunal noted that the definition and budget letter dated 27 July 2005 indicated that "site formation" activities are preparatory to actual mining. Since the appellant's activities were not prior to mining, they did not fall under this category.

2. Classification of Services under "Cargo Handling Services" or "Goods Transportation Agency Services":

The Commissioner classified the appellant's activities under "Cargo Handling Services" based on the collection, transportation, and delivery of limestone to the crusher/hopper. However, the Tribunal observed that the essential feature of the service was transportation, with loading and unloading being incidental. The Tribunal referred to a Circular dated 6 August 2008, which clarified that composite services including loading/unloading provided in the course of transportation by road should be treated as "Goods Transportation Agency Services." Additionally, the Tribunal cited the Supreme Court's decision in Commissioner of Central Excise & Service Tax, Raipur vs. Singh Transporters, which held that transportation within the mining area is classified under "Transportation of Goods by Road Service."

3. Inclusion of the Value of Free Diesel in the Taxable Value:

The Commissioner included the value of free diesel provided by the service recipient in the taxable value, arguing that it was an essential item for rendering the service. However, the Tribunal referred to the Supreme Court's decision in Commissioner of Service Tax vs. Bhayana Builders (P) Ltd., which held that the value of goods/material provided free of cost cannot be included in the gross amount for service tax purposes. Therefore, the cost of diesel could not be included in the taxable value.

4. Invocation of the Extended Period of Limitation and Imposition of Penalties:

The appellant argued against the invocation of the extended period of limitation and the imposition of penalties. The Tribunal's decision to set aside the Commissioner's order implicitly addressed these issues, as the classification of services and inclusion of diesel value were found to be incorrect.

Conclusion:

The Tribunal set aside the Commissioner's order dated 12 October 2012, concluding that the appellant's activities did not fall under "Site Formation and Clearance, Excavation and Earth Moving and Demolition Services" but rather under "Goods Transportation Agency Services." The value of free diesel provided by the service recipient could not be included in the taxable value. The appeal was allowed, and the impugned order was set aside.