Applicability of service tax on activities undertaken at mines prior to enactment of the Finance Bill, 2007 - reg. - Service Tax - F.No. 232/2/2006-Cx.4

Applicability of service tax on activities undertaken at mines prior to enactment of the Finance Bill, 2007 - reg. F.No. 232/2/2006-Cx.4 Government of India Ministry of Finance Department of Revenue Central Board of Excise and Customs New Delhi , dated the 12 th November, 2007 To, The Chief Commissioners of Central Excise and Service Tax (All) Director General (Service Tax) Director General (Central Excise Intelligence) Madam/Sir. Subject : Applicability of service tax on activities undertaken at mines prior to enactment of the Finance Bill, 2007 - reg. It may be recalled that vide appropriate entry in the Finance Act, 2007, 'service provided by any person to any other person in relation to mining of minerals, oil or gas' has been comprehensively brought under the ambit of service tax with effect from 1.6.2007. However, for the prior period, certain disputes relating to chargeability of service tax on some of the services provided to mining sector were reported. In this regard, a draft circular dated 9.10.06 was put up on the official web-site, soliciting response from the stakeholders. The responses received have since been examined. 02. The mining sector (such as the coal mines, mining of ores, etc.) mainly receive the following types of services, mostly on contract basis:- (i) Excavation/drilling and removal of the overburdens (i.e. stratum, layer of mud, boulders, etc, that needs to be removed during or prior to extraction of coal/minerals). (ii) Coal cutting or mineral extraction and lifting them up to the pithead. (iii) Handling and transportation of coal/mineral from pithead to a specified location within the mine/factory or for transportation outside the mines. 03. Excavation/drilling and removal of the overburdens : These activities are essentially in the nature of site formation, clearance, escavation and earth moving. As clarified earlier vide circular B1/6/2005-TRU dated 27.07.2005 (para 6.2)), the definition of site formation and clearance, excavation and earthmoving and demolition service is an inclusive definition and activities specifically mentioned are indicative and not exhaustive. Prior to construction of buildings, factory or any civil structure, activity of mining or clearance, excavation and earth moving or levelling are normally undertaken for a consideration to make the land suitable for such activities. Such services include blasting and rock removal work, clearance of underground, drilling and boring, overburden removal and other development and preparation services of mineral properties and site, and other similar excavating and earth moving services. Hence, these activities are taxable under the category of site formation and clearance, excavation and earthmoving and demolition service w.e.f. 16.6.2005. 04 Coal cutting or mineral extraction and lifting them up to the pithead: These activities are essential integral processes and are part of mining operations. As stated earlier, mining activity has been made taxable by legislation under the Finance Act, 2007 (w.e.f.01.06.2007). Prior to this date, such activities, being part of mining operations itself are not subjected to service tax. Therefore, no service tax is leviable on such activities prior to the said date. 05. Handling and transportation of coal/mineral from pithead to a specified location within the mine/factory or for transportation outside the mine: These activities are post-mining activities and are chargeable to service tax under the relevant taxable services, i.e., "Cargo Handling service" and "Goods Transport by Road". However, in case, such transportation is undertaken by mechanical systems, such as conveyor belt system, ropeway system, merry-go-round systems etc., and the same is not transported by road, no service tax would be chargeable. Service tax is, however, chargeable under cargo handling service, even if the loading, unloading and similar activities are done using mechanical systems. 06. The above are the general guidelines for settlement of pending disputes. These should be applied to individual cases keeping in view the facts and circumstances of each case. 07. The pending cases may be resolved expeditiously. Yours faithfully, (Gautam Bhattacharya) Commissioner (Service Tax)