2018 (6) TMI 1008 - AT - Service Tax

Classification of Services - Site formation and clearing services or mining services? - taxability of the activities prior to 1st June 2007 - Held that - All activities in relation to mining was brought under levy of service tax with effect from 1st June 2007. Further, there can be no doubt that activities in connection with mining that were specifically taxable prior to that date could not escape the levy merely because of a new service composed of various activities some of which were separately taxable - having been incorporated from a particular date. Site formation and clearance is a necessary pre-requisite for extraction from mines and section 65 (97a) of Finance Act, 1994 is not a restricted definition of this activity. Water sprinkling is an activity that is required to prevent the dispersal of dust not just at the mines but in the surrounding area. It cannot, therefore, be held, as the adjudicating authority has, that this, being essential for mining operation, is to be treated as provision of mining service or site formation and clearance service. The supply of fuel/lubricant has been sought to be taxed in the impugned order for the latter period merely because the supply was to a mining location and for the earlier period by association of site clearance and formation service with the subsequent tax levy. The total income from mining is thus intended to brought within the scope of the levy without considering whether any part of the income is generated from activities that are outside the scope of taxation in section 65 (105) of Finance Act, 1994. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Taxability of activities pre and post 1st June 2007, interest and penalties under sections 77 and 78 of Finance Act, 1994.

Analysis:
The case involved a dispute by M/s Machado & Sons Agents & Stevedores Pvt Ltd regarding the taxability of their activities before and after 1st June 2007. The tax recovery was challenged on income earned between 1st April 2006 to 31st May 2007 and from 1st June 2007 to 31st March 2011. The dispute also included interest and penalties under sections 77 and 78 of the Finance Act, 1994.

The appellant contended that their activities were undertaken as a 'pure agent' or were exempt from tax. They claimed to have discharged tax liability during the disputed period. However, additional amounts were deposited during the investigation process.

The main issue revolved around the taxability of consideration received for various services provided by the appellant, such as water sprinkling, transportation of ores, supply of fuel/lubricants, and machinery. The dispute was whether these activities fell under 'site formation and clearing services' before 1st June 2007 and 'mining services' thereafter.

The appellant argued that 'mining services' were taxable only post 1st June 2007 and that certain circulars and rules supported their position. However, the respondent contended that the activities were taxable even before the incorporation of 'mining services' due to the inclusive nature of the definition in the Finance Act, 1994.

The tribunal analyzed the activities in connection with mining and concluded that all such activities were brought under the levy of service tax from 1st June 2007. However, they found fault with the impugned order for incorrectly including certain activities like 'haulage of ores' within the taxable services.

The tribunal further clarified that activities like water sprinkling and supply of fuel/lubricants did not qualify as 'mining services' and were outside the scope of taxability. Similarly, the supply of machinery was deemed not taxable as it did not fall under any specific taxing entry.

Based on the findings that the services provided were outside the coverage of the categories invoked in the show cause notice, the tribunal set aside the impugned order and allowed the appeal with consequential relief.