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TMI Blog2024 (12) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... etter 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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. - MR. P. DINESHA, MEMBER (JUDICIAL) AND MR. VASA SESHAGIRI RAO, MEMBER (TEC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod from June 2007 to September 2008. 4. Lastly, it was pointed by the Audit that for the very same mining services provided by the appellant during the very same period June 2007 to September 2008, they had undervalued the provision of service for the reason that (a) the mining agreements executed in the year 2002 fixed an amount of Rs.40/- PMT and Rs.60/- PMT as mining charges to be paid by the mine owners for extraction of iron ore of 'fine variety' and 'lumps' respectively and the agreements had clauses to provide escalation of 10% of such charges per year in the case of Thakurani Mines and escalation of Rs.5/- PMT in the case of Nuagon Mines. Further, the agreements also provided for review of rates of extraction from time to time considering the change in cost of extraction. However, though the appellant had got the rates increased to Rs.168.70 PMT and Rs.234.20 PMT in respect of Fines and lumps respectively with Thakurani Mines, they had not got the rates increased with Nuagon Mines, especially when similar escalation clauses existed in the iron purchase agreement also and the prices of iron ore got increased multifold against the original rate fixed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing while levy on mining service was introduced. 6.2 Mining Service [section 65(105)(zzzy)]: Presently, geological, geophysical or other prospecting, surface or sub-surface surveying or map- making services relating to location or exploration of deposits of mineral, oil or gas are leviable to service tax under survey and exploration of mineral service [section 65(105)(zzv)]. Services such as - site formation and clearance, and excavation and earth moving, drilling wells for production/exploitation of hydrocarbons (development drilling) well testing and analysis services sub-contracted services such as deploying workers and machinery for extraction/breaking of rocks into stones, sieving, grading, etc. outsourced services, provided for mining are individually classified under the appropriate taxable service. Services provided in relation to mining of mineral, oil and gas are comprehensively covered under this proposed service. With this, services provided in relation to both exploration and exploitation of mineral, oil or gas will be comprehensively brought under the service tax net. 8.2 It is the case of the Ld. Counsel that from the above TRU Letter, it is clear that when the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of income received from the mine owners but the SCN did not accept the same on the ground that the appellant is charging the mine owners for raising of ores through debit notes and that, as per the contract/agreement, the charges for raising of ore has to be paid within a month, failing which these charges are adjustable against payments to be made to the mine owners for the purchase of ores. 9.1 He further submitted that the appellant had contended before the adjudicating authority that in terms of Rule 6 of the Service tax Rules, they are liable to pay service tax only on receipt of value of taxable service and they have accordingly paid the service tax on receipt basis. The appellant contended that the SCN merely relied on the agreement clause contemplating payment within 30 days by the mine owner after adjusting any amounts payable by the appellant and has presumed that the payments have been adjusted against the amounts payable for the purchase of ores, which is not correct and which is not a fact, and the department has not let any evidence to substantiate any such adjustment. In fact, the appellant had put forth before the adjudicating authority that as and when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the mine owners and presumed that it has been adjusted against the payments to be made by the appellant to the mine owners for purchase of ore. The second demand of service tax of Rs.7,72,80,040/- has been proposed on the ground that the agreements provided for certain escalation charges for raising of ore but the appellant had enhanced the charges in respect of Thakurani Mines which is more than two fold but had not increased the same in respect of Nuagaon Mines. Further, the expenses of cost of mining accounted for in the books of the appellant is more than double the raising income shown in the balance sheet. The SCN also alleges that the purchase price of ore from the two mines had gone multifold higher than the rates originally fixed in the agreement. Accordingly, the SCN alleged that the raising charges billed was not the actual one and the same has been suppressed and therefore, it was proposed to re-determine the value of the taxable service based on the cost of providing the service. In this regard, total expenses shown under the head 'production expenses' towards raising of ore as the cost and the demand has been proposed accordingly by considering such cost as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the provision of service is for a consideration in money, then the value of taxable service is the gross amount charged by the service provider and as already stated, in the instant case, the provision of service is for consideration in money and hence, the gross amount charged by the service provider is the taxable value and hence, the value cannot be altered otherwise. Further, clause (ii) above, stipulates that where the provision of services is for a consideration not wholly or partly consisting of money, then the value of taxable service is equal to the money value of such consideration. In the instant case, it has not even been alleged that the consideration is other than money and as such, clause (ii) is not applicable. The residual clause (iii) provides that where the provision of service is for a consideration which is not ascertainable, then the value of taxable service may be determined in the prescribed manner. Sub-section (4) of Section 67 provides that the value shall be determined in terms of the above provisions and in the manner prescribed accordingly. The Service Tax (Determination of Value) Rules, 2006 provides for the prescribed manner and the notice proposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of the above rule is not legally permissible at all. 10.6 He pointed out that the Adjudicating authority has observed in Para 18.3 of the impugned order that the arguments put forth by the appellant are not acceptable for the simple reason that the determination of value as envisaged under Rule 3(b) goes beyond the consideration under Section 67. From the Rule 3(b) reproduced above, it is lucid and clear that it only provides for determination of the value of taxable service only when the consideration is either wholly or partly consisting of money and it nowhere permits to go beyond the consideration mandated under Section 67 and as such, the impugned order is not legally sustainable. The said Rule 3(b) has been amended vide Notification No. 24/2012 ST dated 06.06.2012 whereby, the Rule has been made applicable to cases where taxable value is not ascertainable. The said amendment is prospective and hence, the determination of the value of taxable service based on cost of provision of service by applying the said Rule 3(b) during the relevant period of demand in the instant case is not legally sustainable. 10.7 He further argued that, notwithstanding the above, even assuming b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral 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. 1-6-2007). 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. 5. 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 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. From the above clarification, it is all the more clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame for making the demand. 12. He further submitted that the appellant have not suppressed any fact with intent to evade payment of tax and all the details have either been declared in the ST-3 Return or the same are available in the Balance Sheet of the appellant which is a public document as such, he contended that invocation of extended period is not sustainable at all. 13.0 The Ld. Special Counsel Shri P.R.V. Ramanan represented the Department and put forth the following submissions. 13.1 Placing reliance on the Board s Circular dated 27.07.2005, he submitted that w.e.f. 16.06.2005 'Site Formation Service' is leviable to tax and its scope included 'overburden removal and other development and preparation services of mineral properties and sites' and hence, the demand proposed from June 2005 to May 2007 under 'Site Formation Service' is sustainable and hence, the appellants have no case on merits in their favour. 13.2 The Special Counsel argued that the appellant has contested invocation of extended period on the basis of the SCN issued to them earlier in respect of GTA services involving transportation of ores within and outside the mines under the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturns for the period from 2007-2008 to 2011-2012 along with copies of balance sheets, ST3 returns, and service tax payment challan for the said period, the Ld. Special Counsel objected to the same being submitted during the hearing as the same required verification. Further, we find that the appellant has only summarized in the tabular form for ease of reference, the reconciliation statement and hence, the same was taken on record. Accordingly, the appellant preferred a Miscellaneous Application No. 40660 of 2024 for filing of additional documents under Rule 23 of the CESTAT Procedure Rules, 1982 and the same was allowed by this Bench vide Miscellaneous Order No. 40358/2024 dated 24.10.2024. 15.0 We have heard both sides and considered their submissions and the following questions arise for decision in this matter: - i. 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? ii. 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? iii. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate to refer to the Raising agreement entered into between the contracting parties, relevant clauses of which are extracted below: - 1. The validity of the Agreement shall be initially for a period of 20 (Twenty) years with-effect-from 01.09.2002 and upon expiry there of the agreement shall be renewed for such further periods upon Terms Conditions that may be mutually agreed upon. However Party of the First Part would ensure renewal of the Lease within the required time of expiry of the Lease (30 Years from 01.01.1982). However, the increase in the extraction charges would be increased @ 10% per MT every year for Lump Ore/Natural Fines on account of cost revision. The maximum extraction cost that can be attained only over a period of time will be Rs. 96.63 (Rupees ninety six Paisa sixty three only) per MT for Lump Ore and Rs. 64.42 (Rupees four Paisa-forty two only) per MT for Natural Fines. For example, in the Second Year Lump Ore price will be Rs. 66.00 (Rupees sixty six only) per MT and for Natural Fines will be Rs. 44.00 (Rupees Forty Four only) per MT. 2. The Party of First Part hereby grant full right and liberty to that contractor to enter upon the said mine for car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the proposition thus : It is a general rule, that whensoever the words of a deed, or of one of the parties without deed, may have a double intendment and the one standeth with law and right, and the other is wrongful and against law, the intendment that standeth with law shall be taken. In more modern times that statement was approved by the Privy Council in Rodger v. Comptoir D Escomple de Paris, (1869) LR 2 PC 393 : 16 ER 618, in which Sir Joseph Napier, delivering the advice of the Board said : The rule that words shall be construed most strongly against him who uses them gives place to a higher rule; higher because it has a moral element, that the construction shall not be such as to work a wrong. Similarly, in Fausset v. Carpenter, (1831) 2 Dow Cl 232 : 6 ER 715, the House of Lords accepted the submission of counsel that the court : ... in judging of the design and object of a deed, will not presume that a party executing the deed meant to do and did what he was wrong in doing, when a construction may be put on the instrument perfectly consistent with his doing only what he had a right to do. However, the question of construction should not be approached with a leaning in on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Iron Ore. The rate is one payment, as agreed to between the parties, which is for the extraction of Iron Ore and nothing else. Thus, the above ruling of Apex court would squarely apply. Secondly, even going by the Order-in-Original and assuming the vivisection of the above terms of the agreement which may lead to the provision of multiple services, then the same has to be examined in the context of Sec. 65A ibid, for classification. So, if we assume more than one service, then we have to go by the essential character, in terms of Sec. 65A(2)(b) ibid. This is because, the agreement is for Mining Service which is being treated as the one for SFS . Thus, when the agreement, the ratio of the above decision of the Apex court and Sec. 65A(2)(b) are read together, the only service that is being perceived between the parties, for which the consideration flows is the Mining Service . 15.4 In view of the above, we hold that 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. 15.5 The TRU Letter dated 28.02.2007, explaining the budg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich equally merit consideration 10.2 If the above provision is applied, the services rendered would amount to only mining services. As the contract is a comprehensive one for mining, it cannot be vivisected for levying service tax on that portion of the activity relating to Site Formation in the light of the decision of the Tribunal in the case of Daelim Industrial Company v. CCE, Vadodara [2006 (3) S.T.R. 124 (Tri.-Del.)] = [2003 (155) E.L.T. 457 (Tri.- Del.)] upheld by the Apex Court [2007 (5) S.T.R. J99 (S.C.)] = [2004 (170) E.L.T. A181 (S.C.)]. Consequently, we hold that the services rendered by the appellant are classifiable only under the category of Mining Services and therefore they would not be liable to service tax prior to 1-6-2007. In the light of the above finding, there is no justification for imposition of any penalty. Hence, we allow the appeal with consequential relief. 15.6 The Department has preferred an appeal to Hon'ble Supreme Court against the above order which came to dismissed vide order dated 27.11.2019 since the tax effect is very low. The above decision of the Tribunal has been followed in many decisions of the co-ordinate benches cited supra and tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that the appellant had opportunity to adjust and did not even categorically allege that the appellant had adjusted as above and also did not let in any proof to substantiate such adjustment. The same was confirmed in the Order-in-Original, in the absence of any such allegation or evidence, the Ld. Counsel rightly argued that, the demand confirmed in this regard is frivolous and not sustainable. Further, the appellant had also pleaded before the lower authority that they have paid service tax on receipt basis even on such differences as and when such amounts were realised during the subsequent periods. The learned Special Counsel agreed to it but argued that though they have made such a plea before the adjudicating authority, they have not substantiated the same with a reconciliation statement. 16.1 However, the appellant had submitted a Chartered Accountant s certificate with a reconciliation statement along with relevant balance sheets and ST-3 returns cum service tax payment challans before us during the hearing and we have allowed the application filed in this regard for filing additional documents before us. Though the Department counsel wanted to verify the above and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008 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. (iii) Demand of service tax made under 'Mining Service' for the very same period June 2007 to Sept 2008 on account of charges of under valuation is sustainable: - 17.0 We notice that the demand confirmed in this regard is on the very same mining services and for the very same period for which the earlier demand had been made. In other words, in respect of bill/debit note raised for mining charges during the year 2007- 2008 and 2008-2009 (up to September 2008) and accounted for in the balance sheet, other than the above demand of short payment made, demand of service tax has been made on the grounds of under-valuation. We notice that while making such second demand of service tax on the grounds of under valuation on the basis of cost of provision of service, the value declared in the ST-3/declared in the balance sheet and the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) or (b) below in the said Rule. Ld. Counsel submitted that the above Rule 3 would apply only in cases where the consideration is received wholly or partly in kind other than money and in the instant case, clearly, there is no allegation that the appellant had received any consideration in kind and as such, Rule 3 itself would not apply to this case and hence, the re-determination of value proposed in terms of such Rule 3 is not legally sustainable. We find the above argument of the Ld. Counsel for the appellant is valid and legally correct. 17.3 Notwithstanding the above, the Ld. Counsel argued that during the relevant demand period namely, 2007-2008 and 2008-2009, as already explained in relation to the earlier demand in terms of Rule 6 of the Service Tax Rules, the appellant is required to discharge service tax only the basis of the amount of consideration received and not on the basis of the billed value. In other words, if a bill has been raised for Rs.1 Lakh towards consideration for the service provided but received payment of only Rs.50,000, then the service tax is required to be paid only Rs.50,000/- which is received and nothing more. That being the case, since the deman ..... X X X X Extracts X X X X X X X X Extracts X X X X
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