2022 (3) TMI 1165 - AT - Service Tax

Exemption from Service Tax or not - service of digging wells and bore-wells were directly provided to the farmers for their agriculture operations - inclusion in negative List regime or not - Section 66 D(d)(i) of Finance Act - HELD THAT - The appellant had stated, at the first instance, during the course of inquiry, that Income Tax, TDS have not been deducted as the activities of digging of bore wells of the farmers do not attract deduction of tax at source. The appellant had also led evidences by filing the copies of the land records of service receivers as well as affidavits from the service receivers. Further, services were supported by the certificates issued by Sarpanch of the Village Panchayat, wherein the Sarpanch included the list of the names of the farmers/service receivers, who have received the services of digging of borewells and well, and the amount paid by each individual farmers - such evidences led before the Court Below have not been found to be untrue. Thus, it is held that the Court Below have rejected the evidences arbitrarily and against the Scheme of the Finance Act read with the Rules thereunder. The agriculture/cultivation includes irrigation or watering of the plants, as due to lack of irrigation, it is very difficult to have any agriculture produce - the activities carried out by the appellant is covered in the Negative List, which are exempt from tax - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the services provided by the appellant, i.e., digging of bore wells, are exempt under Section 66 D(d)(i) of the Finance Act, 1994.

Analysis:
The appellant was engaged in providing drilling services and bore wells, not paying service tax amounting to ?39,15,178 from October 2013 to March 2017. The Adjudicating Authority dropped the demand, citing the exemption under Section 66D(d)(i) for services directly provided to farmers for agriculture operations. The Revenue appealed, arguing that digging wells and bore wells do not fall under "Agriculture Operations" and are taxable. The Commissioner (Appeals) noted the lack of evidence supporting the appellant's contentions and reversed the decision, confirming the tax demand and penalties under various sections.

The appellant contended that the activities of digging bore wells for farmers are exempt, emphasizing the sufficiency of evidence presented. The appellant provided land records, affidavits from service receivers, and certificates from the Village Panchayat Sarpanch listing farmers who received services and payments made. The Tribunal found the evidence valid and criticized the lower court for arbitrarily rejecting it, contrary to the Finance Act and rules.

Moreover, the appellant referenced a clarificatory letter from the Finance Minister stating that drilling bore wells for farmers falls under the Negative List Entry of Section 66 D(d)(i), exempting it from tax liability. Relying on the Supreme Court ruling in a related case, the Tribunal concluded that activities like irrigation are integral to agriculture and fall under the Negative List, exempt from tax. Consequently, the Tribunal set aside the appeal, restoring the original order in favor of the appellant and granting consequential benefits as per the law.