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2024 (12) TMI 1196 - AT - Service TaxLevy of service tax - Site Formation service for the period from June 2005 to May 2007 - demand of service tax by culling out the site formation charges from a composite mining contract - short payment of service tax under Mining service for the period June 2007 to September 2008 - demand of service tax under Mining Service for period June 2007 to Sept 2008 on account of charge of under valuation. Whether demand of service tax made under Site Formation service for the period from June 2005 to May 2007 by culling out the site formation charges from a composite mining contract is sustainable? - HELD THAT - From the documents available on record and the agreements between the parties which is the cause for any action between the parties, it is definitely not the intention of either of the signing parties to undertake SFS and hence, at the most, it could be incidental to the mining service. This is in fact of the spirit of the TRU Letter dated 28.02.2007 wherein the Board has considered the incidental activities insofar as the Mining Service is concerned. Hence, the Circular F.No. B1/6/2005 TRU dated 27.07.2005 would apply only when the scope of work is SFS per se. The scope of work would naturally flow from the intention between the parties, as reduced into writing, which alone is instrumental in working out the tax liability. Hence, demanding tax on a service that was not agreed upon, for which no separate consideration is payable or paid, is clearly unsustainable - the Order-in-Original passed by the Ld. Commissioner is clearly on surmises and wrong interpretation of the understanding between the parties, and thus the impugned order lacks any credit and cannot be supported. The contract entered into in 2002 by the appellant with the mine owners for raising of ore is a composite mining contract and the alleged activity of 'site formation' is only incidental to the of mining service and hence, the scope of mining contract cannot be vivisected to demand service tax on the incidental activity of site formation. Therefore, the demand confirmed under 'site formation service for the period from June 2005 to May 2007 is not sustainable and is ordered set aside. Whether the demand of service tax made under Mining service on account of short payment for the period June 2007 to September 2008 is sustainable? - HELD THAT - Rule 6 was amended in the year 2011 to levy service tax from receipt basis to accrual/billing basis. However, in terms of proviso to Rule 9 of P.T.R., 2011, the point of taxation for the services provided/invoice raised before 30.06.2011 would continue to be the date on which payment is received. As per the certified worksheet, the appellant had an opening balance of unrealised income of Rs.17,04,66,648/-as on 01.04.2011 and during the said year 2011-2012 they had billed income of Rs.40,25,39,421/-. However, it is seen from the said worksheet itself and the ST3 returns, that the appellant had discharged service tax on the opening balance of unrealised income as well as the billing income during the year 2011-2012 consequent to the above amendment, irrespective of realisation and despite the above proviso to Rule 9 of P.T.R., 2011, except for a short fall of Rs.4,03,673/-. The demand of service tax on account of short payment of service tax on mining service for the year 2007-2008 2008-2009 (Upto September 2008) is not at all sustainable as the appellant had already paid the service tax in full on the gross income reported in their balance sheet by the end of year 2008-2009 itself. Accordingly, the demand of service tax confirmed in the impugned order in this regard cannot be sustained and is required to be set aside. Whether the demand of service tax made under Mining Service for the very same period June 2007 to Sept 2008 on account of charge of under valuation is sustainable? - HELD THAT - Section 67(1)(ii) provides that in a case where the provision of service is for a consideration not wholly or partly consisting of money be such amount in money with the addition of service tax charged, is equivalent to the consideration. In the instant case, however, there is no allegation that the appellant had realised any part of the consideration in kind other than money. Rule 3 of the above rules provides that the value of taxable service, where the consideration received is not wholly or partly consisting of money, shall be determined in the manner prescribed under clause (a) or (b) below in the said Rule. Since the demand of service tax in respect of billed amount itself is not sustainable if the payment is not received, even presuming without admitting that the redetermination of value as proposed in terms of Rule 3(b) is sustainable for a moment, the question of realising such notionally enhanced value based on cost of provision from the mine owners is not possible at all and as such, in the absence of any realisation of such enhanced value, the demand of tax lacks any merit and is an impossibility - the demand of service tax is not legally sustainable for the reason that enhancement of value based on cost of provision in terms of Rule 3(b) is not applicable as there is no realisation of consideration in kind in this case, in the absence of any realisation of the enhanced value. Accordingly, the enhancement of value as well as the demand of service tax in this regard lacks any merit and hence, the same is set aside. The three demands proposed and confirmed in the impugned order is not sustainable and the same is set aside - the demand of interest confirmed and the penalty imposed in the impugned order are also not sustainable - appeal allowed.
Issues Involved:
1. Demand of service tax under "Site Formation Service" for the period from June 2005 to May 2007. 2. Demand of service tax under "Mining Service" on account of alleged short payment for the period June 2007 to September 2008. 3. Demand of service tax under "Mining Service" for the period June 2007 to September 2008 on account of alleged under-valuation. Detailed Analysis: (i) Demand of Service Tax under "Site Formation Service": The tribunal examined whether service tax could be levied on 'Site Formation Service' by dissecting a composite mining contract. It was noted that the agreements for mining did not separately mention site formation services, which were incidental to mining. The tribunal relied on previous decisions and Section 65A of the Finance Act, 1994, which states that composite services should be classified based on their essential character. It was held that the mining contract could not be divided to impose service tax on site formation activities separately. The tribunal emphasized that the services provided were comprehensively covered under mining services from 01.06.2007, and thus, the demand for service tax under site formation service for the period prior to that date was unsustainable and set aside. (ii) Demand of Service Tax under "Mining Service" on Account of Alleged Short Payment: The tribunal considered whether the appellant had short-paid service tax for mining services due to delayed realization of charges. It was argued that the appellant had paid service tax on a receipt basis, as permitted by Rule 6 of the Service Tax Rules during the relevant period. The tribunal found that the demand was based on the assumption of possible adjustments against payments for ore purchases, without evidence of such adjustments. The tribunal accepted the appellant's reconciliation of realized income and service tax payments, supported by a Chartered Accountant's certificate, showing that service tax was paid on the realized income. Consequently, the demand for service tax on alleged short payment was deemed unsustainable and set aside. (iii) Demand of Service Tax under "Mining Service" for Alleged Under-Valuation: The tribunal examined the demand for service tax based on alleged under-valuation of mining services, determined by the cost of provision of service. The tribunal noted that Section 67 and the Service Tax (Determination of Value) Rules, 2006, applied only when the consideration was not wholly in money, which was not the case here. The tribunal found that the re-determination of value based on costs was not legally sustainable, as the consideration was entirely monetary. Furthermore, the tribunal held that even if re-determination was assumed valid, service tax could only be levied on the amount actually realized, not on notional values. Therefore, the demand for service tax on the basis of under-valuation was set aside. The tribunal concluded that all demands, along with interest and penalties, were unsustainable on merits and set aside the impugned order, allowing the appeal with consequential relief.
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