2023 (7) TMI 201 - AT - Service Tax

Classification of service - mining service or not - activity of transportation of limestone and reject undertaken by the appellant - period involved is from July 2013 to December 2014 - HELD THAT - The contracts in question entered by the appellant with the mine owners are not composite in nature as the same provide for separates activities to be undertaken by the appellant at separate rates. A perusal of the contracts leaves no manner of doubt that the appellant had undertaken the activity of mining and transportation separately, for which separate charges were paid to the appellant by separate invoices. Thus, when the contracts categorise the activity of mining and transportation as two separate activates having no nexus with each other, then these two activities have to be treated as two separate services. Reference can be made to the judgment of the Supreme Court in THE STATE OF MADRAS VERSUS GANNON DUNKERLEY CO. (MADRAS) LTD. 1958 (4) TMI 42 - SUPREME COURT wherein this Supreme Court emphasised the nature of an indivisible works contract and held that there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell from the agreement to do work and render service and to impose a tax thereon cannot be questioned. It is clear from the aforesaid observation of the Supreme Court that in a case when two separate activities are undertaken even though the same may be provided under a single contract, they would have to be treated as two separate activities and taxed accordingly. In M/S. PRAHLAD RAI COMPANY VERSUS CCE, JAIPUR 2017 (12) TMI 1380 - CESTAT NEW DELHI the dispute was whether the activity of mobilizing of equipment, removing of top vegetation, over burden, drilling, blasting, excavating boulders, sorting and sizing of boulders, crushing and further transportation would be classifiable as site formation services or mining services . The Tribunal held that where there is excavation or raising of ore, the same would not be classifiable under site formation service. The activity of excavation of boulders would also not be a service simpliciter, as it includes further processes involved to make the boulders fit for client usage. Thus, the same would be classifiable under business auxiliary service and not under mining service . The impugned order dated 01.02.2017 passed by the Commissioner, therefore, cannot be sustained and is set aside - The appeal is, accordingly, allowed.

Summary

Issues Involved:

1. Demand of service tax on transportation of limestone and reject under mining services.
2. Classification of transportation services under Goods Transport Agency (GTA) or mining services.
3. Consideration of payment through CENVAT credit.
4. Nature of contracts (composite or separate) and their tax implications.
5. Applicability of previous tribunal decisions and circulars.
6. Validity of the impugned order.

Summary:

1. Demand of Service Tax on Transportation:

The appellant, engaged in mining and transportation services, challenged the order demanding service tax on transportation activities under 'mining services' for the period July 2013 to December 2014. The appellant argued that transportation services should be classified under 'goods transport agency' (GTA) services, with tax liability on the service recipients.

2. Classification of Services:

The appellant contended that separate rates were specified in contracts for mining and transportation services, and service tax was duly paid on mining services. They argued that transportation services, including transporting mined goods by the principals, should be classified under GTA services, not mining services, as confirmed by previous audits and tribunal decisions.

3. Consideration of CENVAT Credit:

The appellant highlighted that the department only considered cash payments of Rs. 2,95,26,041/- and ignored Rs. 1,75,77,991/- paid through CENVAT credit. Thus, the demand should be limited to Rs. 2,85,73,729/- after accounting for CENVAT credit.

4. Nature of Contracts:

The tribunal examined six contracts and noted that the appellant had discharged service tax on mining activities but not on transportation activities. The contracts provided separate rates for mining and transportation, indicating that these were distinct activities. The tribunal referenced the Supreme Court judgment in State of Madras vs. Gannon Dunkerley & Co., emphasizing the treatment of separate activities under a single contract.

5. Applicability of Previous Decisions and Circulars:

The tribunal referred to its previous decision in Rashleela Enterprises Pvt. Ltd. vs. CCE, Jaipur-I, where transportation activities were classified under GTA services, not mining services. The tribunal also cited a circular from the Central Board of Indirect Taxes and Customs, clarifying that post-mining transportation activities are taxable under GTA or cargo handling services.

6. Validity of the Impugned Order:

The tribunal found that the contracts in question were not composite and provided for separate activities. It concluded that transportation activities undertaken by the appellant, where no mining activity was involved, should not be taxed under mining services. Consequently, the demand was restricted to Rs. 1,44,46,775/- for transportation activities related to mining.

The impugned order dated 01.02.2017 was set aside, and the appeal was allowed.