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TMI Blog2022 (3) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant group company have unlawfully transported a total quantum of 57,71, 688 MTs of mineral extracted from the total quantum of 98,80,600 MTs of Raw Sands during the period from 2000-01 to 2015-16 and they themselves had accepted that a total quantum of 9,65,948.8 MTs of minerals were transported by them during the period from 2014-15 and 2015-16 after the mining operation was banned and issuance of transport permits halted. It was also learnt from the Committee that the entire quantum of 9,65,948.8 MTs of minerals transported without transport permit during the period from 2014-15 and 2015-16 was an illegal transport. The respondent was thus of the view that appellants were not eligible for the refunds claimed, inasmuch as, the minerals had been exported by illicit mining and transportation. Hence, eight show cause notices were issued upon the appellant proposing to deny the eight refund claims for the period from May, 2016 to December, 2016 on the above grounds. After due process of law, the Assistant Commissioner of CGST & Central Excise, Tuticorin Division, who was the Refund Sanctioning Authority (RSA) denied the eight refund claims. Appeal was preferred by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icit transportation during the period from 2012-13 to 2016-17. The department has taken the view that the quantity of 16,21,400 MTs of minerals included the minerals exported during May, 2016 to December, 2016 for which the refund claims have been filed. Assuming as illicit mining on the basis of Minutes of the Committee, the refund claims have been wrongly rejected. (iv) The Learned Counsel submitted that the allegation of illegal mining is against M/s. V.V. Minerals [Mines], whereas, the export is made by M/s. V.V. Minerals [100% EOU], which is a different entity. The EOU has procured minerals from another entity M/s. V.V. Minerals (Mines) and exported the goods after processing. In fact, M/s. V.V. Minerals, the appellant herein which is an 100% EOU has no mining lease. They procured minerals from other licence holders and undertook further processing of the raw materials. The recommendation by the District Level Committee is only against the mining licensees. Since the appellant does not have any mining lease, such recommendations made by District Level Committee is not applicable to them. The orders passed by the authorities below merely basing of the Minutes of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time being in force". Since the minerals have been excavated/mined more than the permitted quantity, the appellant has violated the provisions of MMDR Act/Rules. Such goods then falls under the category of illegal exports. The authorities below have rightly denied the refund claims, as the claims which arise out of illegal exports. He prayed that the appeals may be dismissed. 5. Heard both sides. 6. The issue is the rejection of refund claims filed under Notification No. 41/2012-S.T., dated 29-6-2012. Undisputedly, the department does not have a case that the appellant has not exported goods or that they have not paid service tax on the input services used for export of goods. So also, there is no allegation that the conditions of the above notification are not fulfilled. The reason for rejecting the refund claims for the period from May, 2016 to December, 2016 is that the department gathered information from the District Level Committee of Tirunelveli that appellant has committed illicit mining of Beach Sands and unlawfully transported the same. The export of goods procured by violation of MM DR Act/Rules and, therefore are illegal exports as per Section 11H of Custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y person raises, without any lawful authority, any mineral from any land, the State Government may recover from such person the mineral so raised, or, where such mineral has already been disposed of, the price thereof, and may also recover from such person rent, royalty or tax, as the case may be, for the period during which the land was occupied by such person without any lawful authority. 7. From the above, it can be seen that the MMDR Act itself provides for punishments for contraventions of provisions of the Act. Sub-clause (a) of Section 11H defines illegal exports. Though, the department contends that the goods fall within the definition of "Illegal export", apart from the Minutes of the District Level Committee, there is nothing to establish violation of MMDR Act/Rules by the appellant. For that matter, it is also contended by the appellant that M/s. V.V. Minerals [Mines] is a different entity, which is the licence holder for mining of Beach Sands. The appellant herein is a registered 100% EOU and does not possess any mining lease. Both these are different entities in the eyes of law. Merely because the supplier of goods has committed violation of local law, the export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem. This aspect has to be looked into by the Government of Tamil Nadu as well as the Committee formed for this purpose. The provision of Mines and Minerals Act of the State has to look into the legal consequences of unlawful mining. When the appellant has exported the goods paying service tax on the services availed for exporting the goods, the department cannot deny the refund stating reasons beyond the Customs Act as well as Finance Act. Notification No. 41/2012 emanates from the Finance Act and, therefore, only if there is violation under the said Act as well as the notification, refund can be rejected. Since the department does not have a case that the appellants have violated provisions of the Finance Act or the notification, I am of the opinion that the rejection of refund claim cannot sustain." 10. We do not find any ground to differ from the view taken in the above case. From the foregoing, we hold that the rejection of refund claim is unjustified. The impugned orders are set aside, the appeals are allowed with consequential reliefs, if any. (Pronounced in open Court on.......) 11. [Per P. Venkata Subba Rao, Member (T)]. - I agree with the conclusion of my sis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 and development under the control of the Union. 15. Thus, mines and minerals can be regulated by Parliament by declaring it to be expedient in public interest to do so. Subject to this power of the Parliament, States can also regulate the mines and minerals. Parliament has passed the Mines and Minerals (Development and Regulation) Act, 1957. Section 2 of this Act contains the declaration by the Parliament that it is expedient in public interest to regulate mines and minerals (as required under Entry 54 of the List I of the Seventh Schedule of the Constitution). It reads as follows : 2. Declaration as to expediency of Union Control. - It is hereby declared that it is expedient in the public interest that the Union should take under its control the regulation of mines and the development of minerals to the extent hereinafter provided. 16. This Act classifies some minerals as 'minor minerals' including sand which can be regulated by the State Governments while the other minerals are regulated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal activity? These fundamental questions do not appear to have been addressed in the context of service tax. 20. However, in the context of Income Tax, these questions were examined and answered. In the case of Commissioner of Income-tax v. S.C. Kothari [1968 69 ITR 1 Guj.], the Hon'ble High Court was dealing with a case where the assessee was engaged, inter alia, in forward trading of vegetable oils. Forward trading was subject to regulation under the Forward Contracts (Regulation) Act, 1952 in violation of which the assessee conducted some forward trading transactions and in such transactions incurred losses. The assessee also did some forward trading which was as per regulations. The assessee wanted the losses incurred in the forward trading which was allegedly illegally conducted to be taken into account to determine the tax liability which the department opposed. The assessee argued that the transactions were not illegal and also that they were eligible to reckon the losses in calculating the income tax. The Hon'ble High Court held that the transactions were illegal because there was violation of the Forward Contracts (Regulation) Act. Nevertheless, such losses can be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee why this letting out of the machines in a commercial way, with a view to the reception of profits in a commercial way, is not trade adventure, manufacture or concern in the nature of trade. On the words, it clearly is. The question really is whether as a matter of construction those words are to be cut down by an overriding consideration that the trade is tainted with illegality. The great mainstay of Mr. Field's argument, quite rightly from his point of view, was the case of Duggan, decided in the Irish Free State, and that decision of the Supreme Court seems to have gone upon this principle, that no construction could be admitted which recognised that the State should come forward and seem to take a profit from what the State prohibited, because the State ought to have prevented it; and it was argued, if I may venture to say so, in a somewhat rhetorical style : Does the State keep its revenue eye open and its eye of justice closed? I must say, I do not feel the force of that conservation at all. Would it have made any difference, I ventured to ask in the argument, if the State had kept both its eyes open and prosecuted the man for the lottery and taxed him for the profits at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, they get their deserts elsewhere". Finlay J. also took the same view in Southern (H.M. Inspector of Taxes) v. A.B. Ltd. He also regarded the question as one of construction. He said : "The question always is, I think, a short question of construction: is there trade.... carried on within the meaning of Case I?" and held that once you find a trade, profession, employment or vocation, and find profits derived from that, then, at once, the tax is leviable and it would be irrelevant to the taxing statute whether the trade is lawful or unlawful. Viscount Haldane, delivering the opinion of the Privy Council, also said to the same effect while construing the Canadian income tax law in Canadian Minister of Finance v. Smith, where the question was whether profit made from a business of illicit traffic in liquor carried on by the taxpayer in Ontario contrary to the provisions of the Ontario Temperance Act were taxable under the Canadian income tax laws : "Construing the Dominion Act literally, the profits in question, although by the law of the particular province they are illicit, come within the words employed... There is nothing in the Act which points to any intention to curtail th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade was trade within the meanings of the Income-tax Act. These decisions did not proceed upon any general principle of law that the profits from an illegal business should be taxed because not to do so would be to put a premium on dishonesty or to permit the assessee to set up his own wrong against the claim of the revenue to payment of rightful tax. This principle was, no doubt, invoked but that was for the purpose of arriving at a proper determination of the meaning of the taxing statute, namely, whether trade within it included illegal trade and it was because the Courts came to the conclusion that illegal trade was included within the meanings of trade as used in the Income-tax Acts that they regarded the profits made from illegal trade as chargeable to tax. The basic rule which these decisions laid down was that the income-tax law is not concerned with the legality or illegality of the business. Once it is found that there is a business, legal or illegal, the income-tax law says that the profits of the business shall be chargeable to tax. Now, the word "profits" is to be understood as observed by Lord Halsbury in Gresham Life Assurance Society v. Styles 'in its natural and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and no illegality is involved in entering into wagering agreements and therefore it might be suggested that this decision would not apply to a case where the business carried on by the assessee is unlawful. But it may be pointed out that the Division Bench did not base the decision on the fact that the wagering agreements were merely void but laid down a general principle application alike to illegal transactions as to void transactions and the decision, therefore, lends support to our view. The second decision of the Allahabad High Court in Chandrika Prasad Ram Swarup v. Commissioner of Income-tax is more in point. That was a decision given by a Full Bench of the Allahabad High Court and two of the Learned Judges of the Full Bench, namely, Iqbal Ahmed J. and Allsop J. dealt with the effect of illegality of the transaction on the assessability to tax. Iqbal Ahmed J. said : "The question of the legality or illegality of transactions entered into by a firm is totally irrelevant in calculating the net profits or the loss incurred by the firm in a particular year. For example if the assessee-firm had entered into a wagering contract which resulted in huge loss, it would not have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment. It was only on account of the said factual matrix that the Assessing Officer assessed the income received by the assessee, by getting refund from the income tax department. However, the Income Tax Appellate Tribunal without any basis set aside the order of the Assessing Authority as well as Commissioner (Appeals) and as such we are of the considered view that the Tribunal committed a serious error by holding that the booty received by the assessee can under no circumstances be the income of the assessee. 25. In such view of the matter, we do not find any ground to sustain the order of the Income Tax Appellate Tribunal. Accordingly the order dated 25-10-2002 is set aside and both the tax cases are allowed. The substantial questions of law are decided in favour of the revenue." 23. The Hon'ble Supreme Court addressed this question in Commissioner of Income Tax v. Piara Singh (1980 SUPP. SCC 166). The substantial question of law before the Supreme Court was as to whether the loss which arose from the confiscation of the currency notes was an allowable deduction under Section 10(1) of the Income-tax Act, 1922 and while upholding the judgment of the High Court and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, one is entitled to any benefits due under the tax law for such illegal exports. Just like the Income-tax Act, the Service tax law (Chapter V of the Finance Act, 1994), the Customs Act, 1962 and the Central Excise Act, 1944 also do not exclude illegal acts from their ambit. Therefore, illegality of the activities does not provide immunity from the tax laws. 26. This principle is also followed in the Customs Act. Under Section 112 of this Act, goods which are illegally imported are liable for confiscation under various clauses. Once confiscated, the ownership of the confiscated goods shifts to the Government. However, under Section 125, the person from whom the goods are seized may be given an opportunity of redeeming them on payment of a fine if the goods are prohibited and shall be given an opportunity of redeeming them if they are other goods. This section reads as follows : SECTION 125. Option to pay fine in lieu of confiscation. - (1) Whenever confiscation of any goods is authorised by this Act, the officer adjudging it may, in the case of any goods, the importation or exportation whereof is prohibited under this Act or under any other law for the time being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax is leviable on illegal activity, tax benefits or tax relief are equally available to illegal businesses. 29. The present case pertains to the Service Tax under Chapter V of the Finance Act, 1994. After 2012 amendment, relevant provisions of this Act, viz., definitions of 'Service' and 'taxable service' and the charging section are as follows : Section 65B : Interpretations : (44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include - (a) an activity which constitutes merely, - (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or Tribunal established under any law for the time being in force. (51) "taxable s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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