2024 (12) TMI 670 - AT - Service Tax

Classification of service - Mining of Mineral, Oil or Gas Services or not - extracting ore, operating mine and otherwise exercising all the powers and rights of the lessee under mining licence - whether the appellant are required to pay service tax on the said services involving the period 30.06.2010 to 31.07.2017? Revenue alleged that the 64% of the extracted ore received by the appellant even though the appellant is a partner in the partnership firm M/s. Sree Gavisiddeshwara Minerals, service tax is required to be discharged on the value of the quantity of ore received when sold by the appellant in the market being the consideration towards rendering of services classifiable under the taxable category of Mining of Mineral, oil or gas services. HELD THAT - A plain reading of the reconstituted partnership of M/s. Sree Gavisiddeshwara Minerals which was originally registered on 27.08.2007 comprising of the seven partners which included the appellant as one of the partners. Later, the appellant was entrusted the work to extract the Iron Ore from the leased mine belonging to the partnership firm and for that, the appellant being one of the partners of the partnership firm was allowed a profit of 64% of the extracted ore and the other partners of 36% of the extracted ore. Therefore, the facts are squarely covered by the ratio of the judgment of the Hon ble Gujarat High Court in the case of Cadilla Healthcare Ltd. 2022 (5) TMI 800 - GUJARAT HIGH COURT . Their Lordships referring to the judgment of the Punjab Haryana High Court, held that ' The High Court observed that a partnership is an agreement between two or more persons to place their capital, labour and skill, or some or all of them for the purpose of carrying on a joint business for their common benefit and dividing its profits in certain proportions. The privilege of profit sharing imposes on each partner the obligation to advance the interests of the partnership business, to apply his time and attention to the management of its affairs, and to devote his knowledge. skill and ability to the success of the enterprise.' In the present case, the appellant being the Managing Partner received 64% of the extracted Ore as share of his profit in the partners firm. Also, it is absurd to say that for extraction of 36% of the Ore for the partners, the consideration for such service was equivalent to the value of 64% of the Iron Ore extracted and retained by the Managing Partner, the appellant. There are no merit in the impugned order - Consequently, the same is set aside and the appeal is allowed.

Issues Involved:

1. Classification of the activity of extracting iron ore as a taxable service under "Mining of Mineral, Oil or Gas Services."
2. Applicability of service tax on the appellant's activities.
3. Determination of whether the appellant's share of extracted ore constitutes consideration for services rendered.
4. Interpretation of partnership agreements in the context of service tax liability.
5. Application of the extended period of limitation and imposition of penalties.

Issue-wise Detailed Analysis:

1. Classification of the Activity:

The central issue was whether the appellant's activities of extracting ore, operating the mine, and exercising rights under a mining license constituted a taxable service under "Mining of Mineral, Oil or Gas Services" as per Section 65(105)(zzzy) of the Finance Act, 1994. The appellant argued that the activity was manufacturing, not a service, as iron ore is classified under Chapter 26 of the Central Excise Tariff, attracting a NIL duty rate. The appellant further contended that the activity was part of a partnership agreement and not a service rendered to an external party.

2. Applicability of Service Tax:

The appellant contended that since they were a partner in the firm, the activity did not constitute a service liable to tax. They argued that the consideration received was a share of profits, not a service fee. The Revenue, however, maintained that the activity fell within the taxable service category and was subject to service tax.

3. Determination of Consideration:

The appellant received 64% of the extracted ore, which they argued was a share of profits rather than consideration for services. The Revenue argued that this constituted consideration for the service of ore extraction, and thus, service tax was applicable. The Tribunal found that the 64% share was indeed a profit share, not consideration for services, aligning with the appellant's argument.

4. Interpretation of Partnership Agreements:

The Tribunal examined the partnership deed and subsequent agreements, concluding that the appellant's activities were internal to the partnership and did not constitute an external service. The Tribunal referenced the Gujarat High Court's decision in Cadilla Healthcare Ltd., which supported the view that internal agreements between partners do not amount to service provision for tax purposes.

5. Application of Extended Limitation and Penalties:

The Revenue invoked the extended period of limitation, arguing suppression of facts by the appellant. The Tribunal, however, found no merit in the Revenue's argument, as the appellant's activities were part of a partnership agreement, and the appellant was not liable for service tax on these activities. Consequently, the Tribunal set aside the demand and penalties imposed by the Commissioner.

Conclusion:

The Tribunal concluded that the appellant's activities did not constitute a taxable service under the specified category, as the activities were part of a partnership agreement and the appellant's share was a profit share, not consideration for services. The appeal was allowed, and the impugned order was set aside, providing relief to the appellant.

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