2023 (5) TMI 766 - AT - Service Tax

Non-payment of service tax - amount paid to the Government or a local authority towards periodical charges for assignment of right to use of natural resource or quarry sand from the allotted mines - point of taxation rules - reverse charge mechanism - period from April 2016 to January 2017 - HELD THAT - This precise issue came up before a Bench of the Tribunal in M/S. THE MADHYA PRADESH STATE MINING, CORPORATION LIMITED VERSUS PR. COMMISSIONER, CGST CENTRAL EXCISE, BHOPAL (M.P.) 2023 (4) TMI 1075 - CESTAT NEW DELHI . In regard to short payment of service tax on dead rent paid by the appellant to the State Government, which was taxable on a reverse charge basis against the receipt of services concerning grant of mining rights, the Bench held that for the purposes of levying service tax, the taxable event is construed at the time the service is provided or agreed to be provided - in order to determine whether levy of services tax is applicable on a particular activity, it is necessary to determine the point of time when such activity is provided or agreed to be provided and since the agreements between the appellant and the State Government regarding grant of mining right were executed prior to April 01, 2016, on which date the transaction in mining of right to use natural resources became taxable, the appellant would not be liable to pay the service tax. The Point of Taxation Rules deal with the date on which payment of service tax has to be made and do not determine whether the service is taxable or not. These Rules, therefore, would not be applicable in the present case. In any view of the matter, the issue is covered by the decision of the Division Bench of the Tribunal in Madhya Pradesh State Mining Corporation. Appeal dismissed.

Summary

Issues involved:
The appeal challenges the dropping of proceedings against the respondent by the Commissioner for non-payment of service tax on the amount paid to the Government for assignment of right to use natural resources.

Issue 1: Non-payment of service tax on periodical charges for assignment of right to use natural resources:
The Department appealed against the dropping of proceedings by the Commissioner, arguing that the service provided to the appellant became taxable from April 01, 2016, as per Section 66D of the Finance Act. The Department contended that since the payment under the agreements was to be made after April 01, 2016, the appellant would be liable to pay service tax. However, a previous Tribunal decision held that the taxable event for service tax is the time when the service is provided or agreed to be provided, and since the agreements were executed before April 01, 2016, the appellant would not be liable to pay the service tax.

Issue 2: Application of Point of Taxation Rules:
The Department relied on Rule 7 of the Point of Taxation Rules 2011 to argue that the appellant should be liable to pay service tax on yearly installments due after April 1, 2016. However, the Circular issued by the CBEC clarified that the exemption from service tax on one-time charges for assignment of right to use natural resources does not apply to periodic payments. The Point of Taxation Rules do not determine the taxability of the service, and the issue was already addressed in a previous Tribunal decision.

In conclusion, the appeal was dismissed as the order passed by the Commissioner was found to be legal and did not warrant any interference.