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2019 (9) TMI 1037 - AT - Service TaxClassification of services - activities of drilling, blasting, excavation and raising (extraction) of iron ores from mines and crushing, screening, sorting, grading, processing etc. of iron ore in the processing unit - Business Auxiliary Service or not period 10.09.2004 to 30.09.2006 - Site Formation and Clearance, Excavation, Earth Moving Demolition Service or not for the period 01.06.2007 to 30.09.2007. HELD THAT - On perusal of the contract, it is seen that the contract is termed a raising contract wherein the principals (first party) desirous of utilizing the knowledge and expertise of the second party i.e. appellants who possess the necessary expertise, labour, machinery and equipment, technical know-how to carry on scientific and systematic mining operations such as excavation, extraction, grading, sorting etc. permits the appellants to act as rising contractor . In terms of Article 3 of the Contract, the second party shall during the continuation of this Agreement, systematically extract, excavate, raise, grade, sort, etc. minerals from the mines. In terms of Article 8, the first party shall pay a sum of ₹ 110 per metric tonne of iron ore and ₹ 125 per metric tonne for iron ore fines. Ongoing through bills available on records, it is seen that the appellants are paid for the quantity of iron ore lumps and C‟ Ore extraction, iron ore extraction charges and iron ore fines extraction for various periods. The main contention of the appellants in this case is that they are manufacturing iron ore and in view of the Hon‟ble Supreme Court‟ decision in the case of EMPIRE INDUSTRIES LTD. VERSUS UNION OF INDIA 1985 (5) TMI 215 - SUPREME COURT and Others the activity undertaken by them amounts to manufacture and therefore, it is beyond the scope of the levy of Service Tax - HELD THAT - We find that as the appellants are engaged in mining of iron ore. The activity involved includes transfer of goods and show-cause notice does not specify as to the value of the goods involved and has not excluded the same from the taxable value. Service Tax, if at all, can be levied on them for the mining activity, they are undertaking in terms of the raising contract, and not under Business Auxiliary Services before 1.6.2007. Therefore, the demand of Service Tax on the appellants under the category of Business Auxiliary Service , the impugned order does not survive on merits. Extended period of limitation - HELD THAT - Understandably, the levy of Service Tax on the activities undertaken by the appellants is a question of interpretation. The issue is certainly debatable. Against the very same appellant, Department has issued various SCNs seeking payment of Service Tax under different Heads. When the Tax administration itself is in doubt as to the nature of the service allegation of suppression of fact on the appellants is not sustainable. Scope of SCN - The appellants contended that the demand of Service Tax was made under three different categories of services and the same was confirmed under the Head Mining Service which is beyond the scope of the SCN - Penalties - HELD THAT - In the instant case, there is a non-vivisectable contract for Mining. There is no doubt that the activity the appellant comes under Mining which is the essential character of the contract. Therefore, the conclusion drawn by the Original Authority and upheld by the Appellate Authority cannot be faulted - appeal is dismissed as far as the demand of Service Tax is concerned - As the issue relates to interpretation of tax liability, penalties are set aside. Business Auxiliary Service - Excavation/Extraction and Raising of Iron Ore - demand of duty for the period 01.10.2006 to 31.05.2011 - HELD THAT - The service rendered by the appellants is clearly a Mining Service. The Department has issued a SCN dated 21.10.2008 to the appellants seeking to demand duty under three categories which includes the category of Mining of Mineral, Oil or Gas. The Adjudicating Authority has confirmed the demand under only one heading of Mining of Mineral, Oil or Gas - there is no reason to interfere with the same - the appeal filed by the Department is rejected. Classification of services - contract is for raising of iron ore by the appellants for the persons with whom they have contracted with - period from 1st April 2006 to 31st March 2007 - HELD THAT - In the instant case also, the contract is for raising of iron ore by the appellants for the persons with whom they have contracted with. Apparently, the activity undertaken by the appellants is essentially that of mining. It cannot be vivisected into different elements and cannot be charged to duty under any other service during relevant period - Therefore, prior to 1.6.2007, no service tax can be collected under the heads Site Formation and Clearance, excavation and earth moving and demolition service or Business Auxiliary Services - Appeal allowed. Business Auxiliary Service - HELD THAT - The facts of this appeal are invariance with the facts discussed above in the case of Appeal No.ST/3568/2012. In ST/3568/2012, though the show-cause notice has discussed different types of services, the adjudicating authority and the appellate authority have come to a conclusion that the services fall under one category i.e., Mining of Ores, Minerals or Gas - there was no confusion in the mind of the adjudicating authority as to under which, the service of the appellant‟s falls in. Appeal disposed off.
Issues Involved:
1. Classification of services rendered by appellants. 2. Applicability of Service Tax under "Business Auxiliary Service" and "Mining Service". 3. Determination of whether activities amount to "manufacture". 4. Validity of show-cause notices and adherence to their scope. 5. Limitation period for issuing show-cause notices. 6. Imposition of penalties and interest. Issue-wise Detailed Analysis: 1. Classification of Services Rendered by Appellants: The appellants engaged in activities such as drilling, blasting, excavation, and processing of iron ore, which were contested by the Department as falling under "Business Auxiliary Service" (Section 65(19)) and later "Mining Service" (Section 65(105)(zzzy)). The Tribunal found that these activities were essentially mining operations and could not be classified under "Business Auxiliary Service" before 1.6.2007. 2. Applicability of Service Tax under "Business Auxiliary Service" and "Mining Service": For the period before 1.6.2007, the Tribunal held that the activities did not attract Service Tax under "Business Auxiliary Service" as they essentially constituted mining, which was taxable under "Mining Service" only from 1.6.2007. This was consistent with previous Tribunal decisions such as in the cases of Avian Overseas Pvt. Ltd. and M. Ramakrishna Reddy. 3. Determination of Whether Activities Amount to "Manufacture": The appellants argued that their activities amounted to the production of excisable goods, thus falling under the purview of Central Excise duty, not Service Tax. The Tribunal agreed, citing Supreme Court rulings in Empire Industries Ltd. and Sesa Goa Ltd., which recognized the extraction and processing of iron ore as production. Consequently, these activities were considered manufacturing, exempting them from Service Tax under "Business Auxiliary Service". 4. Validity of Show-Cause Notices and Adherence to Their Scope: The Tribunal noted discrepancies in the show-cause notices, which demanded Service Tax under multiple categories but were adjudicated under a single category ("Mining Service"). This was deemed beyond the scope of the notices. Specifically, in Appeal No. ST/3568/2012, the demand was confirmed under "Mining Service" despite the notice covering three different services. The Tribunal found this approach valid as the essential character of the service was mining. 5. Limitation Period for Issuing Show-Cause Notices: The appellants contended that the show-cause notices were time-barred. The Tribunal acknowledged that the issue was debatable and related to the interpretation of tax liability, thus ruling out suppression of facts by the appellants. Consequently, the notices were considered time-barred. 6. Imposition of Penalties and Interest: The Tribunal set aside the penalties, citing the interpretative nature of the tax liability issue. As the activities were ultimately classified under "Mining Service" effective from 1.6.2007, penalties for periods before this date were deemed unjustified. Conclusion: The Tribunal allowed the appeals concerning the periods before 1.6.2007, recognizing the activities as mining and not subject to Service Tax under "Business Auxiliary Service". For periods after 1.6.2007, the activities were rightly classified under "Mining Service". The Department's appeal was rejected, and penalties were set aside due to the interpretative nature of the tax liability.
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