2023 (11) TMI 1082 - AT - Service Tax

Failure to pay service tax - Jurisdiction of the Adjudicating Authority - Mining service - Supply of tangible goods service - Site formation service - extended period of limitation - No penalty imposable. Jurisdiction of the Adjudicating Authority - HELD THAT - The jurisdiction vested in an authority may be classified into (i) territorial or local jurisdiction (ii) pecuniary jurisdiction (iii) jurisdiction over the subject matter etc. The list is not exhaustive. The Central Board of Excise and Customs in exercise of powers conferred by sub-rule (1) of rule 3 of the Central Excise Rules, 2001, may based on the requirement, invest an officer of the central or state government with jurisdiction only over a subject matter like investigation culminating in the issue of a show cause notice to the parties concerned, without investing that authority with the power to adjudicate that matter. If the notice is made answerable to another Central Excise Officer having jurisdiction in the matter there is nothing in law that stops that officer from adjudicating the notice. Neither is the principle of natural justice violated. In fact, the initial officers mentioned in the section were Deputy Commissioner / Assistant Commissioner which was replaced by the words Central Excise Officer - The words the preceding Central Excise Officer thus stands for the Central Excise Officer who is empowered to issue a notice / adjudicate the matter as per law. It clearly excludes any other Central Excise Officer from doing the same and hence the phrase the Central Excise Officer appears both in Section 73(1) (2) of FA 1994. Hence it is clear that both the SCN and the impugned order does not suffer from the vice of jurisdictional error - there are no merit in this argument. Mining Service - Exigibility of minor mineral - In relation to mining alone is taxable - Constitution exempts the property and income of a State from Union taxation - Sand is excisable goods classifiable under Central Excise Tariff Heading 2505 and can t be taxed under service tax - The sand is sold hence VAT is applicable and not Service Tax - The appellants services are covered under works contract - Exemption for services rendered to a governmental authority - Mining services in case of Neyveli Lignite Corporation - HELD THAT - The appellant has made a multi-pronged plea against the exigibility of their activities in relation to mining to service tax. Exigibility of minor mineral - HELD THAT - From the activities of the appellant it is clear that they are rendering taxable service to PWD in the quarrying and loading of the mineral i.e. sand which is leviable to service tax. The tax is sought to be levied on the taxable service in relation to mining and not on the goods that have been quarried - In SHREEM COAL CARRIERS (P.) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NAGPUR 2015 (6) TMI 20 - CESTAT MUMBAI , a coordinate Bench of this Tribunal held that the same relates to mining of sand from the riverbed and transporting the same to the Western Coalfield s mining area. Sand is a minor mineral and therefore, mining of sand from riverbed comes within the definition of mining service and will not come within the scope of Cargo Handing Service as the main activities is of mining and therefore, demand of Service Tax on mining of sand is not sustainable in law - Even if the State Government is the owner of the mineral deposits in the lands which vest in the state, it will not be immune to the tax which is imposed by the Center. In relation to mining alone is taxable - HELD THAT - The Division Bench of the Hon ble Delhi High Court in Retails (India) Ltd. Vs Union of India Ors. 2011 (9) TMI 46 - DELHI HIGH COURT examined a similar issue whether an attempt has been made through the introduction of Section 65(105)(zzzz) to levy service tax on renting of immovable property as opposed to the levy of service tax on the service provided in relation to renting of immovable property - Similarly in the case of quarrying for sand the tax is on the value added activity and not on the sand per se. In other words, what is sought to be taxed is the activities in relation to mining and not mining itself. Hence this plea does not succeed. Constitution exempts the property and income of a State from Union taxation - HELD THAT - The appellant s activity of quarrying/ earth work excavating of sand / wet sand and loading in the lorries/ tippers of the consumer by the appellant being covered under the taxable service as defined under Section 65 (105) (zzzy) of FA 1994. Sand is excisable goods classifiable under Central Excise Tariff Heading 2505 and can t be taxed under service tax - HELD THAT - The Hon ble Supreme Court in IN RE THE BILL TO AMEND S. 20 OF THE SEA CUSTOMS ACT 1963 (5) TMI 57 - SUPREME COURT has contrasted sales tax with excise duty and observed that in case of sales tax, the taxable event is an act of sale. Therefore, though both excise duty and sales-tax are levied with reference to goods, the two are very different imposts; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale - As per the facts of this case the appellant is engaged in rudimentary processing of goods which is not amounting to manufacture or production of goods and is a taxable service in relation to mining, hence they are liable to pay service tax. The sand is sold hence VAT is applicable and not Service Tax - HELD THAT - The taxable event is each exercise / activity undertaken by the service provider and each time service tax gets attracted. Hence it is possible to distinguish service tax from VAT. This satisfies the law that one transaction can be either a service or a sale hence both VAT and Service Tax cannot be levied on the same transaction, in the impugned case also. In the instant case as per the statement of Shri M Palaniswamy (appellant) dated 22/01/2015 he has not paid VAT/ sales Tax on the service charges amount received from CPWD since no sales of goods were involved. The statement has not been retracted. This fact of non-payment of VAT / Sales Tax has also been confirmed by PWD as stated at para 7 of the SCN dated 09/10/2015 itself. Since the appellant is only rendering service in relation to the mining of sand and no sale of sand is done by him requiring payment of sales tax / VAT, the appellant s plea fails. The appellants services are covered under works contract - HELD THAT - The appellant had no rights over the land and the sand, nor was any VAT/ sales tax paid for the said activity as per the various statements given by PWD officials. If a contract is primarily a contract of work and labour and materials are supplied in execution of such contract , it is a works contract. In the appellants case no materials are supplied in execution of such contract. There is only pure service rendered by him by engaging his own laborers and the question of works contract does not arise. The substance of the contract entered into by the appellant is hence one of service, hence the service cannot be classified as a works contract - in the absence of any exemption granted, a sub-contractor has to discharge tax liability. The service recipient i.e. the main contractor can, avail the benefit of the provisions of the CENVAT Rules. Exemption to PWD for the statutory functions as defined by statue which were covered under 243 W/243G for the impugned activities relating to mining are examined below. Exemption for services rendered to a governmental authority - HELD THAT - PWD are doing the statutory functions as defined by statue which were covered under 243 W/243G of The Constitution and hence the activity of PWD is outside scope of service / exempted - none of the activities relating to mining is mentioned in the list above as highlighted by the appellant from the appendix to Articles 243 G and W of the Constitution. Hence this plea of theirs fails. Mining services in case of Neyveli Lignite Corporation - HELD THAT - As per section 67(2) of FA 1994, where service tax is not separately recovered from the customer, the cum-tax benefit shall be granted and the tax shall be excluded from the value of the service on which service tax is to be calculated. Hence if the benefit of cum-tax calculation has not been given by the department to the appellant the same should be given. Leasing services - HELD THAT - In the case of vehicles supplied without a contract it was for the appellant to show the terms of engagement of vehicle by their clients, to the investigating officers. Both the customers of the appellant and Shri M Palaniswamy (appellant) in his statement dated 22/01/2015 have stated that no written agreements were executed in respect of the vehicles leased out for a short term. The appellant stated that they supplied their vehicles on a long-term basis to Shri A Senthil Kumar, Coimbatore and to M/s Senthil Kumar Building Materials Co, Coimbatore. Investigations by the officers at TAMIN revealed that the appellant supplied excavators and rock breakers at hourly rates to TAMIN. The appellant provided the operators for the machines, took care of the day-to-day repair and maintenance and also insured the vehicles - Statements given during the investigation have also not been retracted. Once a query has been raised by Revenue adverse inference could be drawn against the assessee if they are not able to provide a satisfactory reply. The initial burden of rebuttal is on the assessee because the basic facts are within their special knowledge. Even as per section 106 of the Indian Evidence Act, the fact within the knowledge of a person must be proved as the burden of proof is cast upon him. For re-working out the correct demand, the cases has to go back to the Original Authority. The duty may be worked out by bifurcating the demand made on the value of supply of vehicles covered by Agreement / contract and amounts received for supply of vehicles without an agreement/contract, by the department and informed to the appellant who shall pay the same for supply of vehicles without a contract including those leased out to TAMIN. Site formation clearance excavation, earthmoving and demolition services - HELD THAT - The work is of a composite nature involving site formation. Further the appellant has not been able to show that the work was executed in the formation of a road for the general public. Their activities have been described above by the recipients of service and are consisting of activities related to site formation service. Hence the failure of the appellant to satisfactorily respond to the query raised by Revenue on basic facts which are within their special knowledge, has led to the inference of the appellant providing the taxable service of site formation. Even at this appeal stage they have not been able to demonstrate by way of documents that their principal activities were towards the construction of roads for use by the general public. Thus, the appellant can make a claim for exemption under the said provision of the notification if taxable services were provided by them to a Governmental Authority etc. Services provided to NAPC, L T, GVR etc. will not get the benefit of this exemption as the taxable service is not provided by the appellant to Government, a local authority or a governmental authority nor are the principal activities meant for construction of roads etc. The activities hence get covered under the definition of taxable service as per Section 65(105)(zzza) of FA 1994 and are liable to discharge duty accordingly without the benefit of exemption under Sl. No. 13 of Notification 25/2012 dated 20.6.2012. Extended Period not Invokable - HELD THAT - In the present case, the period covered by the impugned order is from 2010 to 2015. The Show Cause Notice is dated 9.10.2015. Therefore, the maximum period upto which the demand can be imposed is only till October 2013 and the demand from 2010 to October 2013 merits to be set aside. There was never a suppression of facts to the department. Audit has been conducting periodical verification of accounts during the alleged period. They have been filing ST-3 returns and TR6 forms regularly in which they have disclosed all requisite information. Therefore, the extended period cannot be invoked. Suppressing these facts by not filing their complete Returns, even after having collected the tax from their customers, is a clear case of suppression of vital information with i7ntention to evade payment of duty. There is a positive act of suppression on the side of the appellant showing willful suppression on their part. Hence suppression of information with intention to evade payment of duty is established. In this era of self-assessment, the facts would not have been revealed had investigations into the appellants activities not been initiated by the officers of DGCEI. The issue relating to the suppression of facts is dependent on the facts of each case. This being so the extended period for issue of SCN has rightly been invoked under the proviso to sub-section (1) of section 73 of FA 1994. No penalty imposable - HELD THAT - The question regarding the adjudication by the Commissioner on a SCN issued by the Additional Director General DGGI does not have a bearing on their nonpayment of tax. Similarly, their plea that no tax is payable on mining activity, is also not correct. Relevant statutory provision admits no ambiguity. The grammatical meaning of the taxing provision is in conformity with its legal meaning. Having had the experience of 12 years in the field and when they did not pay sales tax / VAT they should have paid Service tax or sought clarification from the department on the matter. Raising numerous, and at times contradictory, pleas does not mean that there was a substantial interpretation of law involved. Hence there is no reasonable cause involved to invoke the benefit of Section 80 of the FA 1994 - the Supreme Court, in its decision in UNION OF INDIA AND OTHERS VERSUS DHARMENDRA TEXTILE PROCESSORS AND OTHERS 2008 (9) TMI 52 - SUPREME COURT , held that a section prescribing mandatory penalty should be read as penalty for a statutory offence and the authority imposing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority in such cases was duty bound to impose penalty equal to the duties so determined. Application disposed off.

Summary

Issues Involved:
1. Jurisdiction of the Adjudicating Authority
2. Mining Service
3. Leasing Services
4. Site Formation, Clearance, Excavation, Earthmoving, and Demolition Services
5. Extended Period Not Invocable
6. No Penalty Imposable

Summary:

1. Jurisdiction of the Adjudicating Authority:
The appellant challenged the jurisdiction of the Commissioner, Coimbatore, to adjudicate a matter where the show cause notice was issued by the ADG, DGCEI, Coimbatore Zonal Unit. The Tribunal found that the Central Excise Officer, defined under Section 2(b) of the Central Excise Act, 1944, includes any officer appointed by the Board. The DGCEI officer who issued the notice is a Central Excise Officer empowered to issue a show cause notice. Thus, both the SCN and the impugned order do not suffer from jurisdictional error.

2. Mining Service:
a. Exigibility of Minor Mineral:
The term "all minerals" includes "minor minerals." The Tribunal held that service tax is levied on activities where service is rendered, not on the mined sand per se. The nature and characteristics of the mineral do not matter.

b. 'In Relation to' Mining Alone is Taxable:
The Tribunal clarified that what is taxed is the activities in relation to mining and not mining itself.

c. Constitution Exempts the Property and Income of a State from Union Taxation:
The Tribunal referred to the Supreme Court's decision in re. The Bill to Amend the Sea Customs Act (1878), which held that the immunity granted to the States under Art. 289(1) does not extend to duties of customs, excise, or service tax.

d. Sand is Excisable Goods Classifiable under CETA Heading 2505 and Can't be Taxed under Service Tax:
The Tribunal distinguished between manufacture and service, holding that mere processing of goods by quarrying does not amount to manufacture. The incidence of tax is on the service rendered in quarrying.

e. The Sand is Sold Hence VAT is Applicable and Not Service Tax:
The Tribunal found that the appellant is only rendering service in relation to the mining of sand and no sale of sand is done by him requiring payment of VAT.

f. The Appellant's Services are Covered under Works Contract:
The Tribunal held that the appellant's activities constitute pure service and cannot be classified as a works contract.

g. Exemption for Services Rendered to a Governmental Authority:
The Tribunal found that the functions of PWD in relation to mining are not exempted under Articles 243 G and W of the Constitution.

h. Mining Services in Case of Neyveli Lignite Corporation:
The Tribunal directed that cum-tax benefit should be granted if not already given.

3. Leasing Services:
The Tribunal examined the agreement and found that there was a transfer of right of possession and effective control to the transferee. Hence, the activity is not liable to service tax. However, for vehicles supplied without a contract, the appellant would be liable to pay duty along with interest under the taxable service of supply of tangible goods.

4. Site Formation, Clearance, Excavation, Earthmoving, and Demolition Services:
The Tribunal found that the appellant provided composite services related to site formation and not just road construction. Therefore, the activities are liable to service tax without the benefit of exemption under Notification No. 25/2012.

5. Extended Period Not Invocable:
The Tribunal held that the appellant suppressed facts with the intention to evade payment of duty, justifying the invocation of the extended period for issuing the SCN.

6. No Penalty Imposable:
The Tribunal found no reasonable cause to invoke the benefit of Section 80 of the FA 1994. The penalty under section 78 of FA 1994 is mandatory, and the adjudicating authority has no discretion in imposing it.

Modifications:
- The matter is remanded to the Original Authority for quantifying and intimating the correct demand of duty and interest for vehicles supplied without a contract.
- Cum-tax benefit should be granted if not already given.
- The revised amount of penalty payable may be informed to the appellant.
- Penalty under section 77 (2) of FA 1994 is quashed.

The appeal is disposed of on these terms.