2023 (12) TMI 1066 - AT - Service Tax

Non-payment of service tax - Business Auxiliary Service - providing services of 'Sizing of coal' to their customers - Appellant while invoicing the sale of coal has included all the components of its sale price of coal which includes the sizing charges and paid applicable VAT on such assessable value as per the State Laws - HELD THAT - The issue is no longer res integra, as the Tribunal Kolkata Bench has decided the issue in favour of the Appellant in the case of M/s Integrated Coal Mining Ltd. Vs Commissioner of Central Excise and Service Tax, Bolpur 2021 (1) TMI 179 - CESTAT KOLKATA where it was held that Sizing of coal is an incidental and ancillary process to make coal marketable and thus complete manufacture of coal and to make it into excisable goods as per Section 2(d) of the Central Excise Act. The process of sizing of coal is also therefore outside Section 65(19) of the Act since it is a process in the manufacture of the final product, sized coal. The demands confirmed in the impugned order is not liable to service tax under the category of 'Business Auxiliary Service' - the demands of service tax, interest and penalty confirmed in the impugned order set aside - appeal allowed.

Issues involved:
The issues involved in the judgment are the demand for service tax on the services of 'Sizing of coal' provided by the Appellant, classification of such services under 'Business Auxiliary Service', and the applicability of service tax along with penalty and interest.

Issue 1: Demand for Service Tax on Sizing of Coal
The Appellant, engaged in mining and selling coal, was demanded service tax for not paying on the consideration received for 'Sizing of coal' provided to customers. The Commissioner confirmed the demand under 'Business Auxiliary Service' and imposed penalties. The Appellant contested the demand, citing previous judgments where service tax and sales tax were held to be mutually exclusive on the same transaction.

Issue 2: Classification of Sizing Charges
The Appellant entered Fuel Supply Agreements with power companies, requiring delivery of sized coal within specified ranges. The consideration for sizing activity was termed as 'sizing/crushing charges' included in the delivered price of coal. The department demanded service tax on these charges, considering them under 'Business Auxiliary service', leading to the appeal.

Issue 3: Applicability of Service Tax
The Tribunal, based on previous decisions, including those by Kolkata and New Delhi Benches, ruled in favor of the Appellant. It was established that sizing of coal is part of the manufacturing process, making it excisable goods. The Appellant had paid VAT on the assessable value, including sizing charges, and the Tribunal held that the demands confirmed in the impugned order were not liable to service tax under 'Business Auxiliary Service'.

The Tribunal, after hearing both sides and analyzing the appeal documents, noted that the issue was no longer res integra. Previous decisions by Kolkata and New Delhi Benches favored the Appellant, emphasizing that sizing of coal is integral to the manufacturing process. The Tribunal highlighted the principle that if an activity amounts to 'manufacture', it cannot be considered a service, as per the scheme of taxation under the Constitution of India.

In a detailed analysis, the Tribunal referenced specific cases and rulings to support its decision. It was noted that the Appellant had consistently paid VAT or Central Sales Tax on coal sold, further reinforcing the argument against the applicability of service tax on the sizing charges. By following the principles laid down by the Supreme Court, the Tribunal concluded that the demands confirmed in the impugned order were not liable to service tax under the category of 'Business Auxiliary Service'. As a result, the Tribunal set aside the demands of service tax, interest, and penalty, ultimately allowing the appeal filed by the Appellant with any consequential relief as per law.

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