2024 (7) TMI 753 - AT - Service Tax

Classification of service - mining activity or Site Formation and Clearance Excavation and Earth Moving and Demolition services? - appellant provides open cast mining service comprising of removal of overburden wherever required and subsequent extraction/mining of coal or uranium for their clients Bharat Coking Coal Limited (BCCL) and Uranium Corporation of India Ltd. (UCIL) and transporting the same from the pit head to storage place/railway siding - HELD THAT - The nature of activity remaining unaltered and constant both prior and pursuant to introduction of levy of Service Tax on mining services it comprehends logic as to how the nature of activity can be categorized under two different heads. It can thus be nobody s case that without carrying out the activities aforesaid any mining activity can be undertaken. Since mining services were introduced vide clause zzy under Section 105 of Section 65 of the Finance Act with effect from 01/06/2007 it is a pradox for the department to change its stance for classification of the service without any change in actual operations undertaken. The nature of activity carried out by the appellant was therefore non-taxable prior to the introduction of service tax on mining services. Therefore the appellant was not required to obtain Service Tax registration and discharge any Service Tax liability thereon - It need to be understood that for open cast mining operations to be carried out removal of overlaying soil and rocks is essential. Therefore as such no mining activity can be executed either without removal of overburden (open cast minerals) or making a shaft (for underground mines). The contracts were awarded to the appellant not only for site preparation alone but also included a host of other activities from site formation excavation of overburden extraction of ore transportation of overburden to a specific location drilling blasting construction maintenance of haul roads dust suppression etc. The present contract are therefore a composite contract and not a site formation contract simpiliciter leviable to charge as a separate service (mining service) which was rendered chargeable to service tax w.e.f. 1.06.2007. Thus prior to 1.6.07 the operations undertaken on part of the appellant under a composite contract cannot be treated/charged under site formation service - The Tribunal in the case of M/S. HAZARIBAGH MINING ENGINEERS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE CUSTOMS SERVICE TAX BBSR-I 2016 (12) TMI 1131 - CESTAT KOLKATA had held that to invite levy to tax as site formation service it was required to be a service contract simpliciter to the said effect. As no tax was leviable on mining activity during the material period we are of the view that the appellants cannot be subjected to any tax liability in the matter. The order of the lower authority is thus set aside and appeal filed by M/s. Saumya Mining Pvt. Ltd. is allowed - Revenue s appeal seeking imposition of penalty in the matter is dismissed.

Summary

Issues Involved:

1. Classification of Services Rendered
2. Taxability of Services Prior to June 1, 2007
3. Nature of Contracts and Composite Services
4. Imposition of Penalties

Issue-wise Detailed Analysis:

1. Classification of Services Rendered:
The primary issue was whether the services provided by the appellant, M/s. Saumya Mining Pvt. Ltd., fell under 'Site Formation and Clearance, Excavation & Earth Moving & Demolition Service' or 'Mining Services'. The appellant argued that their activities, such as removal of overburden and extraction of coal or uranium, were integral to mining services, which were not taxable prior to June 1, 2007. The tribunal noted that the nature of work, including excavation, drilling, blasting, and transportation, was essential for mining operations and should be classified under mining services rather than site formation.

2. Taxability of Services Prior to June 1, 2007:
The tribunal examined whether the services provided by the appellant were taxable before the introduction of mining services as a taxable category on June 1, 2007. It was concluded that the activities performed by the appellant were not taxable under the service tax regime before this date. The tribunal referenced prior cases and circulars that clarified that mining operations, including site preparation as part of mining activities, were not subject to service tax before the specified date.

3. Nature of Contracts and Composite Services:
The tribunal analyzed the contracts awarded to the appellant by Bharat Coking Coal Limited (BCCL) and Uranium Corporation of India Ltd. (UCIL), which included a range of activities from site preparation to extraction and transportation of minerals. It was determined that these were composite contracts, not merely site formation contracts. The tribunal cited the Supreme Court's decision in Commissioner of C.Ex. & Cus., Kerala V. Larsen & Toubro Ltd., which distinguished between service contracts simpliciter and composite works contracts, emphasizing that the latter should not be split for tax purposes.

4. Imposition of Penalties:
The tribunal addressed the issue of penalties imposed under Sections 77 and 78 of the Finance Act. Given the conclusion that the services were not taxable before June 1, 2007, the tribunal found no justification for imposing penalties on the appellant. Consequently, the tribunal dismissed the revenue's appeal seeking the imposition of penalties on the appellant and the director of the firm.

Conclusion:
The tribunal concluded that the services provided by M/s. Saumya Mining Pvt. Ltd. were non-taxable prior to June 1, 2007, as they fell under mining services. The order of the lower authority was set aside, and the appeal filed by the appellant was allowed with consequential relief. The revenue's appeal for the imposition of penalties was dismissed. The judgment emphasized the importance of correctly classifying services and recognizing the composite nature of contracts in determining tax liability.

(Pronounced in the open court on 09/07/2024)