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TMI Blog2023 (4) TMI 1075X X X X Extracts X X X X X X X X Extracts X X X X ..... State Government. The mining operations were carried out by the appellant either directly or through contractors for disposal of sand. In some cases, the appellant also formed joint ventures with the contractors to jointly undertake the mining operations. 3. Pursuant to audit objections, a show cause notice was issued to the appellant proposing a demand of service tax of Rs. 22,84,16,550/- with interest and penalty for the period from April 2013 to March 2017. This demand was confirmed by the order that has been impugned in this appeal. 4. The transactions with the corresponding allegations in the show cause notice and the findings in the order of the Principal Commissioner are tabulated below: S. No. Issue Transaction in dispute Allegation in the show cause notice Finding in the order Disputed demand (in Rs.) 1. Non-payment of service tax on income from forfeiture and contractual adjustments The agreement with contractor stipulates that the contractor would sell a decided quantity of sand from the mines of the appellant. Clause 4 of the contract states that the contractor would have to deposit the entire contracted sale value for the first year irrespective of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, there is a short-payment of service tax on royalty during the relevant period. That the appellant's contention that the short-paymentis to the extent of dead rent /surface rent, which are not taxable, cannot be accepted as the Balance Sheet has reflected there amounts as 'royalty paid to government'. Further, dead/surface rent is always adjusted against royalty and paid in lieu of royalty. Thus, service tax is payable thereon under Reserve Charge Mechanism basis. That dead/surface rent paid to State Government is another form of royalty. The change in nomenclature is only to segregate the activity of mining from non-mining for the purpose of record maintenance. Hence, Service Tax is payable on such dead rent/ surface rent. 1,12,83,938/- 3. Non-payment of service tax on Director sitting fee In terms of the agreement with JV Companies few executive/whole-time Directors of the appellant company were appointed as 'nominee Director' in the J.V. Companies. The J.V. company has paid sitting fees to the said Directors (through the appellant) during the relevant period, on which service tax has been discharged by the JV companies. The appellant received certain amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Directors; and (vi) The appellant has not provided any service to the State Government against area development charges. 6. Dr. Radhe Tallo, learned authorized representative appearing for the Department, however, support the impugned order. 7. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the Department have been considered. 8. The first issue relates to demand of service tax in respect of the following amount: i. Amount booked as 'contractual adjustments' towards contractor's failure to lift and sell the prescribed quantity of material from the mines during the currency of contract; ii. Forfeiture of earnest money deposit on account of contractors failure to honor the terms of the contract like delayed/non-payment, further sale of material at more than the prescribed ceiling rate, execution of contract fraudulently by giving incorrect information; and iii. Amount booked as other receipts which included aforesaid two amount. 9. The impugned order has observed that the appellant has received the amount as consideration for the failure on the part of the contractors to honor the terms of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29. The situation would have been different if the party purchasing coal had an option to purchase coal from 'A' or from 'B' and if in such a situation 'A' and 'B' enter into an agreement that 'A' would not supply coal to the appellant provided 'B' paid some amount to it, then in such a case, it can be said that the activity may result in a deemed service contemplated under section 66E (e). 30. The activities, therefore, that are contemplated under section 66E (e), when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are activities where the agreement specifically refers to such an activity and there is a flow of consideration for this activity. ***** 32. In the present case, the agreements do not specify what precise obligation has been cast upon the appellant to refrain from an act or tolerate an act or a situation. It is no doubt true that the contracts may provide for penal clauses for breach of the terms of the contract but, as noted above, there is a marked distinction between 'conditions to a contract' and 'considerations for a contract'. 11. The Circular dated 28.02.2023 issued by the Central Board of Indirect Tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether service tax on an activity or transaction needs to be levied treating it as service by way of agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. Contents of Circular No. 178/10/2022-GST dated 3rd August, 2022, may also be referred to in this regard." (emphasis supplied) 12. It is, therefore, not possible to sustain the demand. 13. The second category of demand pertains to the alleged short-payment of tax to the extent of dead rent/surface rent paid by the appellant to the State Government, which has been held to be taxable on reverse charge basis against the receipt of service concerning grant of mining rights. 14. The contention of the learned counsel for the appellant is that the demand is not sustainable as the service was received prior to 01.04.2016, when such services from the Government were not subject to tax. 15. The charging provision prescribing levy of tax is section 66B of the Finance Act and it is as follows: "66B. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent on the value of all services, other than those services specified in the nega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 01.04.2016 and so no tax implication can be fastened on the appellant for such period. 21. The third issue that arises for consideration is regarding the fee paid to the Directors by the joint venture company. In this connection, it needs to be noted that the amount was only 'held' by the appellant on behalf of the joint venture/Directors and cannot be treated as income against provision of any service. Even otherwise, the transaction pertaining to this amount is between the joint venture company and the Directors and the appellant has no role to play. 22. The fourth issue that arises for consideration is whether the appellant provided any services to the State Government against the area development charges. 23. During the relevant period, the appellant received area development charges from the State Government to meet its administrative expenses. These amount have been paid pursuant to the order dated 30.12.1996 issued by State Government. The impugned order has sought to tax these amount by treating them as 'consideration' towards provision of taxable service. 24. It is not possible to sustain this view. For a service to be taxable, it is necessary that there should exist ..... X X X X Extracts X X X X X X X X Extracts X X X X
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