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TMI Blog2025 (1) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... all facts related to rendering of mining services to Shrawan and not paying service tax on them. The services were rendered by PJL to Shrawan whose final product was limestone which was an exempted good. Shrawan was not rendering any service. Thus, the service tax which PJL had to pay would have had to be borne by PJL or Shrawan. Shrawan could not have availed credit of the service tax, if it was paid, because its final product- limestone- is an exempted good - the demand of service tax from PJL along with interest and penalties need to be sustained. Whether CENVAT credit is available of service tax paid by ART on the services which it had rendered to PJL, treating them as input services for manufacture of cement? - input services - HELD THAT:- While dealing with the service tax issues in this order, nobody can quarry or mine except under a licence given under the MMD Act. In case of minor minerals, including limestone, the licence can be granted by the State Government. Government of Madhya Pradesh granted the mining lease to Shrawan stipulating that it cannot be transferred without consent of the Government. We have already found that it was not transferred and the lease continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rement to invoke extended period of limitation, i.e., the wrong availment of CENVAT credit is because of fraud or collusion or willful mis-statement or suppression of facts or violation of Act or Rules with intent to evade payment of duty. Since it is found that extended period of limitation was wrongly invoked, we also set aside the penalty imposed under Section 11AC of the Excise Act read with Rule 15 of CCR. There is no dispute that ART had provided services to PJL, issued tax invoices and paid service tax on such services. Therefore, there was nothing improper, let alone illegal or irregular in ART issuing such invoices to PJL. In fact, it was required to pay service tax and issue invoices. The fact that PJL used such invoices to take CENVAT credit wrongly treating it as an input service for manufacture of cement is an altogether different matter. Neither the issue of invoices by ART was incorrect nor can Pradeep, Manish and Ashish be accused of abetting issue of such an invoice. Clearly, the penalties imposed on them under Rule 26(2)(ii) of Excise Rules cannot be sustained and need to be set aside. Conclusion - i) Shrawan was and continued to be the lease holder of Ramasthan m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Finance Act. 4. Service Tax Appeal No. 51738 of 2021 is filed by Shri Ashish Hinger [Ashish] Function Head Finance to assail penalty of Rs. 1,00,000/- imposed on him under Section 78A of the Finance Act. 5. Service Tax Appeal No. 51739 of 2021 is filed by Shrawan Kumar Pathak [Shrawan] the mine owner, to assail penalties of Rs. 10,000/- under Section 77(1)(c) and Rs.10,000/- under Section 77(2) of the Finance Act [ The Finance Act The Finance Act . 6. Service Tax Appeal No. 51740 of 2021 is filed by Manish Bhatia [Manish] Chief Finance Officer of PJL to assail penalty of Rs. 1,00,000/- imposed on him under Section 78A of the Finance Act. 7. Excise Appeal No. 51730 of 2021 is filed by PJL to assail the denial of CENVAT credit of Rs. 7,70,01,957/- and order for its recovery along with interest under Rule 14 of CENVAT Credit Rules, 2004[CCR] and imposition of an equal amount as penalty under Rule 15(2) of CCR read with Section 11AC of the Central Excise Act, 1944 [ Excise Act ]. 8. Excise Appeal No. 51723 of 2021 is filed by Ashish to assail the penalty of Rs.5,50,00,000/- under Rule 26 (2)(ii) of Central Excise Rules, 2002 [ Excise Rules ] 9. Excise Appeal No. 51731 of 2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions specified in the proviso to Rule 35 of said Rules transfer this lease or any right, title or interest therein to a person holding a certificate of approval and an income tax clearance certificate from the Income tax officer concerned on payment of a fee of rupees one hundred to the State Government. Provided that the lessee / lessees shall make available to the transferee the original or certified copies of all plans of abandoned working in the area and in a belt 65 metres wide surrounding it. (Provided further that where the mortgage is an institution or a Bank or a cooperation specified in schedule V it shall not be necessary for any such a Institution or Bank or Co-operation to hold the said Certificate of Approval and the said income-lax clearance certificate.) (3) The State Government, may by order in writing determine the lease at any time if the lessee / lessees has / have in the opinion of the State Government committed a breach of any of the above provisions or has / have transferred the lease or any right, title of interest therein otherwise than in accordance with clause (2).Provided that no such order shall be made without giving the lessee/lesses a reasonable op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng operations for and on behalf of Shrawan (Noticee No. 5) at Ramasthan Mines and not for itself. (ii) PJL gave an amount of Rs. 6 crores to Shrawan merely as an advance against the assured future sale of limestone after its extraction. There was no sale of the entire limestone of the mine by Shrawan to PJL. It was purchased by issuing purchase orders periodically to Shrawan over 10 years who, in turn, issued bills or invoices for the limestone charging VAT thereon and the said sale took place after its delivery at the crushing side of PJL being a sale on FOR basis. (iii) PJL rendered taxable services of mining of limestone to Shrawan but had not paid appropriate service tax as per the Finance Act. (iv) Shrawan had not transferred his mining rights to PJL. In fact, two commercial transactions are involved in the case -one in which the PJL rendered mining services to Shrawan and another transaction in which Shrawan sold the limestone to PJL. (v) ART were not the input service providers for the cement manufactured by PJL and, therefore, no CENVAT credit of the service tax paid by them is available to PJL. (vi) PJL indulged in fraudulent activity of wrong availment of CENVAT credit by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposed on Ashish, Manish and Pradeep also need to be set aside. Submissions on behalf of the Revenue 22. Learned special counsel for the department vehemently supported the impugned order and asserted as follows: (i) The uncontroverted facts of the case are that Shrawan was the mining lease holder of the mines and had mining and ownership right on the limestone excavated from it; (ii) PJL entered into agreement with Shrawan where PJL was required to undertake all activities related to excavation of limestone;(iii) Under another agreement Shrawan sold the entire limestone to PJL. This agreement also provided that PJL shall pay to Shrawan, the cost of limestone after deducting the expenses towards mining it; (iv) As per the third agreement known as commercial agreement as per which Rs. 6 crores shall be paid as a cost of total minable limestone in advance which was to be adjusted against the rate of limestone to be excavated from the mines in future and sold on FOR basis; (v) No bill or invoice was raised by Shrawan for the alleged sale of limestone. As per the agreement, PJL issued purchase orders to Shrawan for purchase and supply of limestone periodically and after limestone was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, no service tax is payable. 26. The question, therefore, is whether PJL had mined the limestone for itself or it had rendered mining services to Shrawan. To answer this, we must first look at relevant legal provisions. As per article 246, Parliament can make laws with respect to Union List and the State can make laws with respect to State List. Regulation of Mines and Mineral development, to the extent to which such regulation and development, under the control of the Union is declared by Parliament by law to be in public interest, is included in Entry 54 of List I (Union List) of the Seventh Schedule. Regulation of mines and mineral development, subject to the provisions of List I (Union List), is included in Entry 23 of List II (State List) of the Seventh Schedule. 27. The relevant entries are as follows: List I (Union List) Entry 54 . Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest. List II (State List) Entry 23. Regulation of mines and mineral development subject to the provisions of List I with respect to regulation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 places quarry leases, mining leased and other mineral concessions in respect of minor minerals squarely within the control of the State Government. 32. Sections 14 15 read as follows: 14. Sections 5 to 13 not to apply to minor minerals. ―The provisions of sections 5 to 13 (inclusive) shall not apply to quarry leases, mining leases or other mineral concessions in respect of minor minerals. 15. Power of State Governments to make rules in respect of minor minerals .―(1) The State Government may, by notification in the Official Gazette, make rules for, regulating the grant of quarryleases, mining leases or other mineral concessions in respect of minor minerals and for purposes connected therewith. ***** 33. What is evident from the above is that having declared it to be in public interest, Parliament passed the MMD Act to regulate mines and minerals. Section 4 of the MMD Act prohibits not only mining but even prospecting and even reconnaissance for minerals without a licence or permit. The power to issue licences and permits and to regulate falls exclusively within the purview of the State Governments in respect of minor minerals, which definition includes stones (includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire balance lease period or period of ML Agreement including renewal thereof, whichever is higher or during such extended period thereafter as may be mutually agreed between the parties. The appointment shall be effective on and / or from the date of execution of this Agreement, without any further act, deed or documentation by and between the Company and LESSEE or any other person. The key terms and conditions forming the binding obligations of the Parties hereto, pertaining to the said operation and excavation arrangement are set out in ATTACHMENT 3 hereto which shall form an integral part and parcel of this Agreement. 38. Learned counsel for the appellant has also confirmed during hearing that no action has been initiated by the State Government against Shrawan for transferring the licence. From all of the above, it is clear that the mining licence continued to be with Shrawan, who alone could mine the limestone either himself or by seeking services of others. The Operator Agreement between Shrawan and PJL, therefore, was nothing but an agreement in which PJL provided mining services to Shrawan who had the licence to mine limestone. Thus, PJL was the main contractor for mining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an advance. 42. We have perused the invoices under which the limestone was sold to PJL which clearly show a far lower price than the market price, as discussed in the impugned order. The reason for this is evident. Had Shrawan mined the limestone and sold it to PJL, it would have had to incur costs of mining and it would have charged market price for the limestone. Had Shrawan paid PJL for its mining services also, it would have charged market price for the limestone. Instead of paying PJL for its services and charging market price for the limestone sold to PJL, Shrawan charged a far less than market price for the limestone. Thus, PJL received consideration for its services from Shrawan in the form of lower price of limestone. 43. The invoices also show that the sale is on FOR destination basis at the crushing site of PJL. Therefore, the submission of the learned counsel for the appellant that the entire limestone was sold for a single payment in advance holds no water. If that was the case, the entire limestone would have belonged to PJL itself and there would be no occasion to issue a purchase order to Shrawan nor for Shrawan to issue an invoice. The invoices make it explicit th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challan without provision of taxable service in violation of the Rules made under the provisions of this Chapter; or (c) availment and utilisation of credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the Rules made under the provisions of this Chapter; or (d) failure to pay any amount collected as service tax to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, then any director, manager, secretary or other officer of such company, who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention, shall be liable to a penalty which may extend to one lakh rupees. Explanation For the removal of doubts, it is hereby clarified that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, and the proceedings with respect to a notice issued under sub-Section (1) of Section 73 or the proviso to sub-Section (1) of Section 73 is concluded in accordance with the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a provider of output service for providing an output service; or (ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; 56. It has been held in the impugned order that ART had rendered mining services as a sub-contractor to PJL which had a contract to provide mining services to Shrawan. PJL had not paid service tax on the mining service which it had provided to Shrawan. The services rendered by ART were not 'input services' for manufacture because they were not used in or in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such duties and service tax would be a cost to Shrawan. 60. Similarly, when Shrawan sold limestone to PJL, no duty was payable on it and PJL could not any CENVAT credit on it. The cement manufactured by PJL is an excisable product and PJL is entitled to take CENVAT credit of inputs and input services used in or in relation to manufacture of cement. The services rendered by ART to PJL were in relation to the services which PJL had rendered to Shrawan and the exempted goods limestone produced by Shrawan. The services rendered by ART clearly had no correlation to the manufacture of cement. Therefore, the finding in the impugned order that CENVAT credit was wrongly availed by PJL on the services rendered by ART treating it as input service for manufacture of cement is correct and needs to be sustained. 61. CENVAT credit irregularly taken can be recovered under Rule 14 of CCR and the provisions of section 11Aof the Excise Act apply mutatis mutandis to such recovery. Therefore, the time limits prescribed under section 11A of Excise Act also apply to recovery of irregularly availed CENVAT credit under Rule 14 of CCR. It provides for invoking extended period of limitation of five years if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled CENVAT credit in its ER-1 returns. The legal requirement to impose penalty under section 11ACof Excise Act is the same as the requirement to invoke extended period of limitation, i.e., the wrong availment of CENVAT credit is because of fraud or collusion or willful mis-statement or suppression of facts or violation of Act or Rules with intent to evade payment of duty. Since we have found that extended period of limitation was wrongly invoked, we also set aside the penalty imposed under Section 11AC of the Excise Act read with Rule 15 of CCR. 66. Pradeep, Manish and Ashish have assailed the penalties imposed on them under Rule 26(2) (ii) of the Excise Rules. This Rule reads as follows: Rule 26. Penalty for certain offences . (1)]Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or two thousand rupees, whichever is greater. Provided that where any proceeding for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. d) The sale of the limestone for each consignment took place when PJL issued purchase orders and Shrawan supplied the limestone at the crushing site of the PJL. e) The amount paid in advance by PJL to Shrawan was only an advance and the purchase orders and invoices were issued later from time to time. f) PJL neither paid service tax on the services which it had rendered to Shrawan nor filed any return nor had it taken registration under service tax. It thus, suppressed these facts with an intent to evade paying service tax. g) Therefore, the demand of service tax , interest and penalties on PJL must be sustained. h) Considering the role played by Pradeep, Manish, Ashish and Shrawan, the penalties imposed on them under sections 77 and 78Aof the Finance Act must be upheld. i) The services rendered by ART to PJL were not in or in relation to the manufacture of cement by PJL. Therefore, no CENVAT credit of the service tax paid by ART is admissible as 'input service' to manufacture of cement by PJL. j) The irregularly availed CENVAT credit must be recovered but only within the normal period of limitation as the ingredients to invoke extended period of limitation are not prese ..... X X X X Extracts X X X X X X X X Extracts X X X X
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