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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 ..... of the mine owners and other for purchase of iron ore. The levy of service tax on Mining Service was introduced w.e.f. 01.06.2007 and the appellant is claimed to be discharging service tax liability on the said service thereafter, on receipt basis, till the year 2010-2011. 2. Consequent to audit of the accounts of The appellant conducted by the Department, it was observed that the extraction of Ore involves the following processes, namely, (i) overburden removal, (ii) raising and stacking, (iii) hiring of pay loaders, (iv) mining, (v) screening, (vi) sampling and analytical study of iron ore, etc. and hence, it appeared that the appellant was engaged in providing 'site formation service' as they were undertaking various activities to prepare the site for iron ore extraction and levy of service tax on such service was introduced from 16.06.2005 and the appellant had not made payment of service tax on provision of such service from June 2005 to May 2007. 3. Secondly, it was observed by the audit that the though the appellant had been paying service tax on the mining service provided by them from 1.06.2007 on receipt basis, since the appellant had entered into a contract wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest and to impose penalty under Section 76 and Section 78. The appellant vide their reply dated 22.08.2010 contested the above proposals. 6. The above notice came to be adjudicated by the Commissioner of Central Excise, Chennai II Commissionerate vide his impugned Order-in-Original No. 09/2012 dated 23.02.2012 wherein, the entire demand of service tax along with applicable interest was confirmed and penalty equal to the demand of tax was imposed. The demands in the Order-in-Original has been assailed by the appellant in this appeal. 7. Heard Shri M. Karthikeyan, Ld. Advocate appearing for the appellant, his submissions are summarised as under: - Site Formation Service 8.0 The Levy of Service tax on Site Formation services came into effect from 16.06.2005. Site Formation was defined in Section 2(97a) of the Finance Act 1994 which read as follows: - "(97a) "site formation and clearance, excavation and earthmoving and demolition" includes, - i. drilling, boring and core extraction services for construction, geological or similar purposes; or ii. soil stabilization; or iii. horizontal drilling for the passage of cables or drain pipes; or iv. land reclamation work; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of composite contract of mining, which are brought to tax under Mining service post 01.06.2007, tax cannot be levied under Site formation service or any other service for the period prior to the said date by vivisecting the contract. a) G.S.Atwal & Co Engineers Pvt. Ltd. [2023 (6) TMI 310 CESTAT Kolkatta] b) R. K Marketing Services [2022 (4) TMI 517 CESTAT Bangalore] c) Thriveni Earthmovers [2018 (11) TMI 31 CESTAT Kolkatta] d) Balaji Mines & Minerals [2019 (9) TMI 1037 CESTAT Bangalore] e) Hazaribagh Mining & Engineers [2016 (12) TMI 1131 CESTAT Kolkatta] f) Ramakrishna Reddy [2018 (1) TMI 1498 CESTAT Hyderabad] g) Ramakrishna Reddy [2008 (10) TMI 115 CESTAT Bangalore] h) Ramakrishna Reddy SC Order. 8.4 Accordingly, it's his case that in view of the ratio laid down in the above decisions / orders, the demand under site formation service is not at all sustainable. Mining Service 9.0 The Ld. Counsel submitted that there are two demands under this category for the same period of June 2007 to September 2008 and in relation to the same two contracts/agreements. The first demand of tax of Rs.1,66,17,211/- is on the ground that the appellant had billed income of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as above during the Budget 2011-2012 and Para 6.2 of the said clarification read as follows: - "6.2 Consequential changes have also been made to the Service Tax Rules, 1994 to alter the payment of service tax from receipt of payment to provision of service..." 9.3 He submitted that the appellant had discharged service tax liability on the amount receivables pending as on 31.03.2011 during the year 2011-2012. In support of the same, he has referred to the CA Certificate along with the copies of the balance sheets for the period from 2007-2008 to 2011-2012 and the ST-3 returns filed, from which, it could be seen that they have been carrying forward the mining charges receivable from the mine owners year-on-year basis from 2007-2008 and as on 31.03.2011, the appellant had a balance of the receivable amount at Rs. 17,04,66,648/-. During the year 2011-2012, the appellant had a raising charges income of Rs.40,25,39,421/-. From the ST-3 returns filed by the appellant during the year 2011-2012, it is clear that they had discharged service tax liability on both the opening balance receivable (on receipt basis) as well as the billings made during the year (on accrued basis). Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial demand for ore and the appellant has committed exports to be made, merely because one mine owner has not agreed for price escalation, they would not be in a position to take any drastic steps which would only be detrimental to their business interest, they would have to pull on in such situations. Hence, difference in the mining charges collected from different mine owners in respect of two different mines located in two different states, due to various business compulsions and highly competitive market, cannot be made a ground for revising or enhancing the value of taxable service. 10.2 He drew our attention to Section 67 of the Finance Act, 1994 which provides for valuation of taxable services and sub section (1) of the said section read as follows during the relevant period of demand: - "67. Valuation of taxable services for charging service tax (1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,- (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry course of trade and the gross amount charged is the sole consideration; (b) where the value cannot be determined in accordance with clause (a), the service provider shall determine the equivalent money value of such consideration which shall, in no case be less than the cost of provision of such taxable service." 10.5 He argued that the value of taxable service shall be determined in terms of the above said Rule only when the consideration received is not wholly or partly consisting of money and it is not the Rule prescribing the manner for determination where the value of taxable service is not ascertainable in terms of clause (iii) of Section 67(1). He submitted that in the instant case, the entire consideration is in money only and it is not the case of the Revenue that the consideration in the instant case is other than money. It is relevant to note that the SCN and the impugned order has treated the consideration in the contract as ascertainable, in money and accordingly, proceeded to demand service tax on such consideration in money on the basis that payment of such consideration in money has been adjusted in the books against the amount payable for purchase of ore by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he service has been provided before 31.03.2011 or if the bill is raised before 31.03.2011, then the point of taxation is the date of receipt of payment and as such, for the services provided till 01.04.2011, the service tax is required to be paid only when payment is received. Therefore, even if the value of taxable service is re-determined on the basis of cost of provision of service, unless and otherwise the appellant receives payment towards such enhanced value, there is no liability to pay tax. The enhancement of the value on the basis of cost of provision of service is only for the purpose of service tax assessment, it does not really increase the receivables under the contract with the mine owner and the appellant will never realise any such payment and that therefore, the demand of service tax is not legally sustainable at all and merits to be set aside. 10.8 Without prejudice to the above contentions, learned counsel submitted that cost of provision of mining service reckoned in the SCN is not relating to mining activity alone. In terms of the agreement, the appellant is required to raise the ore and hand it over to the mine owner. Thereafter, the mine owner would sell the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service" 10.10 Based on the above ratio, he contended that the value of taxable service cannot be anything more or less than the consideration paid as quid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments for the 'Gross amount charged' as per bills was received in subsequent periods and tax has been paid on such receipts in the subsequent period, but the appellant failed to reconcile the large difference between the gross amount charged as per bills and the gross amount declared in the ST3 returns and such payment of tax in the subsequent periods has not been substantiated by the appellant. 13.4 With regard to the payment of service on account of under valuation of above mining service during the very same period, the special counsel contended that the SCN alleged that cost of extraction of iron ore was more than double the income shown as 'raising income' in their balance sheets and invited our attention to Section 67(1)(iii) which provides that "in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner", and Service Tax (Determination of Value) Rules, 2006 prescribes the manner. The special counsel reiterated the facts based on the audit observation/SCN as put out above in Para 4 of the order and contended that the said facts have been taken note of in the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce' or the connected scope or activity in the above contracts. Para 3.1 of the SCN observes that the extraction of ore involves the following processes namely (i) overburden removal, (ii) raising and stacking, (iii) hiring of pay loaders, (iv) mining, (v) screening, (vi) sampling and analytical study of iron ore, etc and hence, it appeared that the appellant was engaged in providing 'site formation service', but there is no such details mentioned anywhere in the agreements. From the expenses incurred by the appellant during the relevant period, the audit appears to have culled out the figures for such site formation activity and proposed to demand service tax. 15.2 The Ld. Adjudicating Authority has considered the activity of site formation independently. From the documents available on record and the agreements between the parties which is the 'cause' for any action between the parties, it is definitely not the intention of either of the signing parties to undertake SFS and hence, at the most, it could be incidental to the mining service. This is in fact of the spirit of the TRU Letter dated 28.02.2007 wherein the Board has considered the incidental activities insofar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Agent for the said Mine, Thakurani Iron Ore Mines. The party of first part shall accordingly notify the Indian Bureau of Mines, the Labour Enforcement Officer, the District Magistrate, the Department of Mines Safety and such other authorities as required under the law. The contractor reserves its right to recall and/or replace all or any of its deputed/loaned personnel at any time and from time to time as it may deem fit and proper, without assigning any reason. However all payment of salaries and other expenditure of deputed personnel mentioned hereinabove shall be borne by the contractor." At this juncture, we find it most appropriate to refer to a recent decision of the Hon'ble Apex court in the case of Commissioner of Service Tax Delhi Vs. Quick Heal Technologies Limited [with Civil Appeal Nos. 5168-5169 of 2022 dated 05.08.2022] wherein, the Hon'ble court, while considering the importance of 'contract' between the parties, has ruled as under: - "Construction of agreement between the parties: - 53. ...... 54. In Delta International Ltd. v. Shyam Sundar Ganeriwalla, (1999) 4 SCC 545 : AIR 1999 SC 2607 and Ramdev Food Products (P) Ltd. v. Arvindbhai Rambhai Patel, (2006) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the updates are being provided. We are of the view that the artificial segregation of the transaction, as in the case on hand, into two parts is not tenable in law. It is, in substance, one transaction of sale of software and once it is accepted that the software put in the CD is "goods", then there cannot be any separate service element in the transaction. ....." [emphasis added by us] Now, it is equally relevant to refer to the determination of classification as prescribed under Sec. 65A of the Finance Act, 1994. The same is reproduced for convenience: "65A. Classification of taxable services - (1) For the purposes of this chapter, classification of taxable services shall be determined according to the terms of the sub-clauses (105) of section 65; (2) When for any reason, a taxable service is prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows: - (a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description: - (b) composite services consisting of a combination of different services which cannot be classified in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-ordinate Bench at Bangalore held as follows in the case of M. Ramakrishna Reddy [2008 (10) TMI 115 CESTAT Bangalore]: - "10.1 From the above, it is very clear that the salient feature of the services rendered by the appellant is mining. In other words, the appellant is expected not only to remove the overburden but also to excavate the Barytes Ore. We cannot say that the appellant is not undertaking site formation work, but site formation work undertaken by the appellant is incidental to the mining activity. To put it in different words, the essential character of the work undertaken by the appellant is mining or winning of minerals. The mining services became taxable only with effect from 1-6-2007. The period in the present case is prior to 1-6-2007. It cannot be said that the entire service rendered by the appellant comes under the category of site formation. If that were so, one cannot say that it also falls under "Mining Services." In any case, Section 65A (2) of Chapter V of the Finance Act, 1994 reads as follows: "When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of Section 65, classification shall be ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find no reason not to follow the above ratio laid down therein and accordingly, we hold that 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 2005 to May 2007 is not sustainable and is ordered set aside. (ii) Demand of service tax under "Mining Service" on account of alleged short payment from June, 2007 to September, 2008:- 16.0 In this regard, the appellant contended that they have been paying service tax on mining services for the period from 01.06.2007 onwards. In terms of Rule 6 of Service Tax Rules existing during the years 2007-08, 2008-09 till April 2011, every assessee is required to declare only the realised income and discharge service tax on such realised income on receipt basis. Accordingly, the appellant also has been paying service tax on the mining charges as and when realised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the next year. Any realisation against such opening balance as well as the income billed during the year would be accounted as taxable income in the ST-3 returns and service tax was discharged on the same and in a similar manner, the balance of unrealised income would be arrived at and carried forward as opening balance of next year. 16.2 Rule 6 was amended in the year 2011 to levy service tax from receipt basis to accrual/billing basis. However, in terms of proviso to Rule 9 of P.T.R., 2011, the point of taxation for the services provided/invoice raised before 30.06.2011 would continue to be the date on which payment is received. As per the certified worksheet, the appellant had an opening balance of unrealised income of Rs.17,04,66,648/-as on 01.04.2011 and during the said year 2011-2012 they had billed income of Rs.40,25,39,421/-. However, it is seen from the said worksheet itself and the ST3 returns, that the appellant had discharged service tax on the opening balance of unrealised income as well as the billing income during the year 2011-2012 consequent to the above amendment, irrespective of realisation and despite the above proviso to Rule 9 of P.T.R., 2011, except for a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement as well as purchase of ore agreements. Accordingly, the rates for purchase of ore was revised multifold in the case of both the mines namely, Thakurani Mines and Nuagaon Mines but the rates of mining services got revised more than two fold only in respect Thakurani Mines and in respect of Nuagaon Mines, the rates of mining services remained the same and were never revised. Further, the cost of extraction of iron ore as per the expenses accounted for in the balance sheet was found to be double than the mining charges billed on the mine owners. Accordingly, the demand proposed in terms of Rule 3(b) of the Service tax Determination of Value Rules, 2006 by redetermining the value based on the above cost of extraction was confirmed in the impugned order. 17.2 The Ld. Counsel invited our attention to Section 67 of the Finance Act, 1994 and Service Tax (Determination of Value) Rules, 2006 which is reproduced in the earlier paras of this order. He contended that in terms of Section 67(1)(iii), in case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. The impugned order has relied upon this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment. Further, we find that the above argument is valid and the demand of any service tax for the period from 2007-2008 to 2008-2009 is not sustainable at all since the appellant could not realise the enhanced value as proposed from the mine owners. Therefore, we hold that 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. 18. We have held on merits that all the three demands proposed and confirmed in the impugned order is not sustainable and have set aside the same, we do not propose to delve into the issue of invocation of extended period. 19. Further, for the reasons set out in the preceding paragraphs, we hold that the demand of interest confirmed and the penalty imposed in the impugned order are also not sustainable and we set aside the same as we find the demand of service tax itself as not sustainable on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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