2024 (12) TMI 84 - AT - Service Tax

Levy of service tax - amounts, in addition to Royalty , paid by appellants to District Mineral Foundation (DMF) and to National Mineral Exploration Trust (NMET) - akin to Royality or not - HELD THAT - It is established that royalty is not tax. It is the consideration in the nature of assignments of rights by the government paid by the Lessee to use natural resources. The activity of assigning the mining rights is rendered by the government to the Lessee of said mine against payment (royalty). The activity is nothing, but is a service rendered by government to the said lessee in terms of section 65B of the Finance act 1994 - There is no denial that royalty is the consideration for the service rendered by government/mine owner/ service provider to the mine Lessee/ lease-holder, the service recipient, the appellants have been regularly paying service tax on Royalty under reverse charge mechanism in terms of notification number 30/ 2012 dated 20.06. 2012. Foremost it can judicially be noticed that impact of mining can occur at local, regional, and global scales through direct and indirect mining practices. Mining operations often result, insignificant, environmental impacts on local ecosystems and broader implications for planetary environmental health - These processes also affect the atmosphere through carbon emissions, which contributes to climate change most of the mining methods, therefore have significant environmental and public health effects hence the mining companies are required to follow, strict, environmental, and rehabilitation codes to ensure that the mined areas return to its original state. In the year 1992, Rio Declaration on Environment and Development coined the concept of Sustainable Development of environment and formulated guiding principles for the purpose, one of those principles is, The Polluter Pays - This principal is now universally accepted as environmental law not only by Organization for Economic, Co-operation, and Development (OECD) and European Countries (EU), United Kingdom, United States of America, France, Canada, Australia but also by India under the environment policy Ecotax . This principle is based on the fact that as much as pollution is unavoidable, the person or industry that is responsible for the pollution must pay some money for the rehabilitation of the polluted environment. Reverting back to section 9B and section 9C of the Mines Act, it is observed that the lease-holder/ the polluter is required to pay an amount, equivalent to certain percentage of amount of royalty paid to the government/ lessor, to DMF NMET requiring them to render them the activity of rehabilitating, the area, and the people in and around the leased mine - Since DMF NMET are the creations of the state government, as apparent from above quoted sections; 9B 9C of the Mines Act, both these trust are the governmental authority in terms of clause 2(s) of notification number 25/ 2012 dated 20.06. 2012. Resultantly the appellant is liable to pay service tax under reverse charge mechanism vis- -vis the amounts paid to both these trusts in terms of notification number 30/ 2012 dated 20.06. 2012. Since the question framed is decided against the appellants, there are no infirmity in the order, confirming the demand of service tax - Resultantly the present appeal is hereby order to be dismissed.

Summary

Issues Involved:

1. Whether the payments made to the District Mineral Foundation (DMF) and the National Mineral Exploration Trust (NMET) are subject to service tax under the reverse charge mechanism.
2. Whether DMF and NMET qualify as "governmental authorities" under the relevant notifications.
3. The applicability of the principle of revenue neutrality in the context of service tax liability.
4. The imposition of interest and penalties on the alleged service tax liability.

Issue-wise Detailed Analysis:

1. Service Tax Liability on Payments to DMF and NMET:

The core issue revolves around whether the payments made by the appellants to DMF and NMET are akin to 'Royalty' and thereby subject to service tax under the reverse charge mechanism. The appellants argued that these payments do not constitute consideration for any service provided by the state, DMF, or NMET, as there is no corresponding service rendered to them. The department, however, contended that these payments are similar to 'Royalty' and thus attract service tax. The Tribunal observed that 'Royalty' is a consideration for the service rendered by the government in granting mining rights, and the appellants were paying service tax on this under the reverse charge mechanism. The Tribunal further noted that DMF and NMET are involved in rehabilitating the mining areas and communities, which qualifies as a service under section 65B(44) of the Finance Act, 1994. Therefore, the amounts paid to DMF and NMET are considered as consideration for services rendered, thus attracting service tax.

2. DMF and NMET as Governmental Authorities:

The Tribunal examined whether DMF and NMET qualify as "governmental authorities" under the relevant notifications. It was established that both DMF and NMET are trusts created by the state government under sections 9B and 9C of the Mines and Minerals (Development and Regulation) Act, 1957. As such, they are considered governmental authorities in terms of clause 2(s) of notification number 25/2012 dated 20.06.2012. Consequently, the appellant is liable to pay service tax under the reverse charge mechanism for the amounts paid to these trusts as per notification number 30/2012 dated 20.06.2012.

3. Revenue Neutrality:

The appellants argued that the exercise of levying service tax is revenue neutral since they would be eligible for CENVAT credit of the entire amount paid. However, the Tribunal did not find this argument sufficient to negate the service tax liability. The Tribunal emphasized that the liability arises from the nature of the payments as consideration for services rendered, irrespective of the possibility of claiming input tax credit.

4. Imposition of Interest and Penalties:

The Tribunal upheld the imposition of interest and penalties on the appellants. It reasoned that the non-payment of service tax resulted in evasion of revenue, justifying the penalties imposed. The Tribunal found no infirmity in the order confirming the demand of service tax, along with interest and penalties, against the appellants.

Conclusion:

The Tribunal dismissed the appeal, confirming the demand for service tax on payments made to DMF and NMET under the reverse charge mechanism. It held that these payments are consideration for services rendered by governmental authorities, thereby attracting service tax liability. The Tribunal also upheld the imposition of interest and penalties, rejecting the appellants' arguments regarding revenue neutrality and exemption applicability.