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2025 (7) TMI 928 - AT - Service TaxLevy of service tax - royalty and other periodical payments made to Government of West Bengal/alleged local authorities after 01.04.2016 under reverse charge provisions for the assignment of right to use coal from Sarisatolli Coal Block with respect to which mining rights were conferred prior to 01.04.2016 - mining lease documents has been executed prior to 01.04.2016 - HELD THAT - The said issue has been examined by this Tribunal in the case of Principal Commissioner CGST Central Excise versus S.R. Traders 2023 (5) TMI 766 - CESTAT NEW DELHI wherein in that case the Tribunal held that The Point of Taxation Rules deal with the date on which payment of service tax has to be made and do not determine whether the service is taxable or not. These Rules therefore would not be applicable in the present case. Admittedly in this case mining lease rights has been assigned to the appellant on 22nd April 2015 which is well prior to 1st April 2016. In that circumstances following the decision of this Tribunal in the case of The Madhya Pradesh State Mining Corporation Limited 2023 (4) TMI 1075 - CESTAT NEW DELHI and S.R. Traders 2023 (5) TMI 766 - CESTAT NEW DELHI which has been affirmed by the Apex Court it is held that the royalty paid by the appellant is not taxable during the period April 2016 to June 2017. Thus no Service Tax can be demanded from the appellant. Accordingly whole of the demand of the Service Tax is set aside. Consequently no penalty is imposable on the appellant - appeal allowed.
The core legal question considered by the Tribunal is whether the appellant is liable to pay service tax on royalty and other periodic payments made to the Government of West Bengal and alleged local authorities after 01.04.2016 under reverse charge provisions, in respect of the assignment of the right to use coal from Sarisatolli Coal Block, where the mining rights were conferred prior to 01.04.2016.
Additional issues considered include:
Issue-wise Detailed Analysis 1. Taxability of Payments under Mining Lease Agreements Executed Prior to 01.04.2016 Legal Framework and Precedents: The Finance Act, 1994, Section 66D(a)(iv), prior to 01.04.2016, placed government-provided services largely under the negative list, exempting them from service tax except for support services. Post 01.04.2016, an amendment excluded all government services to business entities from the negative list, thereby making them taxable under reverse charge. The Point of Taxation Rules, 2011, and relevant notifications also govern the timing and applicability of service tax. Several judicial precedents were cited, including:
Court's Interpretation and Reasoning: The Tribunal emphasized that the taxable event for service tax is the time when the service is provided or agreed to be provided. Since the mining lease and related agreements were executed before 01.04.2016, when such services were not taxable, the appellant cannot be held liable for service tax on payments made after that date. The Tribunal relied heavily on the reasoning in SR Traders and Madhya Pradesh State Mining Corporation cases, which held that subsequent payments under pre-amendment agreements do not attract service tax. Application of Law to Facts: The appellant acquired mining rights on 22.04.2015, prior to the levy date. Therefore, payments of royalty, additional premium, fixed rates, and contributions linked to these rights do not attract service tax under the amended provisions. Treatment of Competing Arguments: The Department argued that since payments were made after 01.04.2016, service tax was payable. The Tribunal rejected this, noting that the Point of Taxation Rules govern timing of payment, not the taxability of the service itself, which depends on when the service was provided or agreed to be provided. Conclusion: The Tribunal concluded that no service tax liability arises on payments made under mining agreements executed prior to 01.04.2016, despite payments being made post that date. 2. Impact of Excise Duty Paid on Coal Production on Service Tax Liability Legal Framework and Precedents: Section 66D(f) of the Finance Act, 1994, exempts services involved in carrying out any process amounting to manufacture or production of goods from service tax. The Central Excise Act, 1944, governs excise duty on coal production. Relevant judicial decisions include:
Court's Interpretation and Reasoning: The Tribunal noted that the appellant's coal extraction activity qualified as manufacture and had already suffered excise duty. The payments to the Government of West Bengal were part of the cost of production included in excise valuation. Since simultaneous levy of excise duty and service tax on the same activity is impermissible, the service tax demand is unsustainable. Application of Law to Facts: The appellant engaged a job worker to carry out mining operations, with excise duty paid on coal production. The amounts claimed for service tax formed part of the cost of production and had already borne excise duty. Treatment of Competing Arguments: The Department did not dispute excise duty payment but sought to impose service tax on the same amounts. The Tribunal held that this is contrary to settled legal principles. Conclusion: The Tribunal held no service tax is leviable on amounts already subjected to excise duty as part of the manufacturing process. 3. Limitation and Alleged Suppression of Facts Legal Framework and Precedents: Extended limitation periods under service tax law apply only where there is wilful suppression of facts, fraud, collusion, or intent to evade tax. Key precedents include:
Court's Interpretation and Reasoning: The Tribunal found no evidence of suppression or intent to evade tax by the appellant. The mining rights were acquired through a public auction under central legislation, and excise returns were subject to provisional assessment. The department was aware of the mining lease and payments. The appellant's bonafide belief that service tax was not payable further negated any claim of suppression. Application of Law to Facts: The appellant's financial disclosures were public, and no concealment was demonstrated. Mere non-payment of service tax without fraudulent intent does not justify extended limitation. Treatment of Competing Arguments: The Department alleged suppression based on non-disclosure in ST-3 returns. The Tribunal rejected this, emphasizing the absence of positive acts of concealment. Conclusion: The proceedings are barred by limitation as extended limitation was not justifiable in absence of suppression or fraud. 4. Taxability of Contributions to DMF, NMET, and AMBH Fees Legal Framework and Precedents: Service tax under reverse charge applies to services received from Government or local authorities as defined under Sections 65B(26A) and 65B(31) of the Finance Act, 1994, and Notification No. 30/2012 dated 20.06.2012. The Mining Settlements Act, 1964, governs AMBH fees. The Constitution's Article 243W and Twelfth Schedule define municipal functions. Court's Interpretation and Reasoning: The Tribunal noted that:
Application of Law to Facts: The appellant's payments to DMF, NMET, and AMBH were in accordance with statutory provisions and did not constitute consideration for taxable services from government or local authorities under service tax law. Treatment of Competing Arguments: The Department did not adequately address these contentions in the impugned order. The Tribunal found the demand on these amounts unsustainable. Conclusion: Service tax demand on AMBH fees, DMF, and NMET contributions is unfounded and must be set aside. Significant Holdings "For the purposes of levying service tax, the taxable event is construed as the time when the service is provided or agreed to be provided. Therefore, in order to determine whether levy of service tax is applicable on a particular activity, it is necessary to determine the point of time when such activity is provided or agreed to be provided. Since the agreements between the appellant and the State Government regarding grant of mining right were executed prior to April 01, 2016, on which date the transaction in mining of right to use natural resources became taxable, the appellant would not be liable to pay the service tax." "Since the activity of extraction of coal amounts to manufacture and has suffered excise duty, no service tax can be levied simultaneously on the same activity." "Extended period of limitation can be invoked only when the twin conditions of fraud, collusion, wilful misstatement or suppression of facts along with an intent to evade payment of duty are satisfied. Mere failure to pay duty without any positive act to evade cannot be equated with suppression of facts." "Services provided by the Asansol Mines Board of Health (AMBH) are exempt from service tax under Notification No. 25/2012, and contributions to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) do not fall within the definition of Government or local authority and hence are not liable to service tax under reverse charge." The Tribunal's final determination was that the appellant is not liable to pay service tax on the royalty and other periodic payments made after 01.04.2016 under reverse charge provisions for mining rights assigned prior to that date. Further, the demand for service tax on payments that have already borne excise duty is unsustainable. The extended period of limitation invoked by the department is not justified due to absence of suppression or intent to evade tax. Lastly, the service tax demand on contributions to DMF, NMET, and AMBH fees is unfounded. Consequently, the impugned order confirming the demand and penalty is set aside and the appeal is allowed with consequential relief.
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