2024 (5) TMI 1487 - AT - Service Tax

Demanding Service Tax - undervaluation of taxable service of washing of coal by not including the sale value of coal rejects as well as the rebate granted towards coal rejects in the taxable value - non-inclusion of amount received from sale of coal rejects and rebate granted in lieu of coal rejects in the value of service of beneficiation of coal and demand of service tax thereon - whether the value of coal rejects is includable in the value of taxable services provided by the appellant for washing of coal or not? HELD THAT - As per clause 8 of the agreement between the appellant and service recipient, the coal rejects shall be the property of the appellant and he is entitled to dispose of the said coal rejects and the value of the said coal rejects has been added in the taxable charges for the beneficiation of the raw coal. In these circumstances, when the value of coal rejects has already been included in the taxable value, on which the appellant has already discharged service tax, therefore, Service Tax cannot be demanded from the appellant twice. The sale of coal rejects is an independent activity and has no nexus with the service of the beneficiation of coal. We also take note of the fact that the appellant has raised invoice at the rate of 182.36 per metric tonne as coal beneficiation charges , which includes the rebate on coal rejects at the rate of 9.8 per metric tonne of raw coal, which clearly indicates that the appellant has paid Service Tax on the value of coal rejects on which a rebate has been given to the appellant. Therefore, allegation of undervaluation of taxable value of service provided by the appellant on the ground that a rebate of coal rejects is not added, is misplaced. In fact, the appellant has paid Service Tax on the value of coal rejects and the same has been retained by the appellant, which has become the property of the appellant in terms of the agreement of service provided by the appellant. As during the process of beneficiation of coal, certain coal rejects are generated which are required to be disposed of in an environment-friendly way and the responsibility of such disposal is on appellant as per the agreement. Therefore, transaction of sale of coal rejects either as-is or upon mixing the same with good quality of coal is an independent transaction. It is a transaction of sale on which no Service Tax is payable and this transaction has no nexus with the activity of coal washing service provided by the appellant. Disposal of coal rejects is a condition of the agreement and the agreement only provides for disposal of coal rejects and not the methodology or process of such disposal. Therefore, disposal of coal rejects is merely a condition of agreement and does not constitute consideration for the service of beneficiation of coal. As appellant has suffered / discharged VAT on sale of coal rejects, no Service Tax is payable by the appellant. We hold that appellant has rightly paid the Service Tax as per agreement on the activity of beneficiation of coal and the value of coal rejects is already included in the taxable value of service provided by the appellant. Therefore, the coal rejects is the property of the appellant on which no Service Tax is payable by the appellant. No merit in the impugned order and the same is set aside.

Summary

Issues:
Appeal against demand of Service Tax for non-inclusion of amount received from sale of coal rejects and rebate granted in the value of service of coal beneficiation.

Detailed Analysis:

Issue 1: Inclusion of Sale Value of Coal Rejects in Taxable Service
The Appellant provided coal washing services and retained coal rejects for sale. The Department demanded Service Tax on the additional consideration received for coal rejects. The Appellant argued that the sale of coal rejects is independent and not part of the coal washing service. They relied on legal precedents to support their contention. The Tribunal analyzed the agreement terms, noting that the value of coal rejects was already included in the taxable charges for coal beneficiation. As the Appellant had paid Service Tax on the value of coal rejects, the demand for double taxation was dismissed.

Issue 2: Nexus between Coal Washing Service and Sale of Coal Rejects
The Tribunal observed that the appellant invoiced coal beneficiation charges inclusive of the rebate on coal rejects, indicating payment of Service Tax on the value of coal rejects. The disposal of coal rejects was found to be a separate activity with no nexus to the coal washing service. The agreement specified the disposal responsibility of coal rejects, which was considered a condition of the agreement and not part of the service consideration. As the appellant had already paid VAT on the sale of coal rejects, no additional Service Tax liability was imposed.

Issue 3: Classification of Coal Washing Service
The Appellant argued that coal washing should be classified as 'mining service' rather than 'business auxiliary service' to avoid Service Tax liability. However, the Tribunal did not delve into this argument as the main focus was on the inclusion of coal rejects in the taxable value.

Issue 4: Machinery Provision for Determining Consideration
The Appellant contended that in the absence of a provision to determine the value of consideration, the levy itself fails. The Tribunal did not address this argument explicitly but focused on the inclusion of coal rejects in the taxable value based on the agreement terms.

Issue 5: Extended Period of Limitation
The Appellant argued that the extended period of limitation should not apply in this case. The Tribunal did not provide a detailed analysis of this argument but proceeded to decide on the main issue of inclusion of coal rejects in the taxable value.

In conclusion, the Tribunal held that the Appellant had correctly paid Service Tax as per the agreement terms, including the value of coal rejects in the taxable service. The impugned order was set aside, and the appeal was allowed with consequential relief, if any.