By TIOL News Service

MUMBAI, FEB 24, 2014: AS per the work orders given by M/s. Western Coalfields, the appellant undertook the activity which included removal of all materials in all kinds of strata with its drilling, excavation, loading, transport and dumping, spreading and dozing at specified places as per instructions of the client. However, blasting, lighting and pumping were required to be done by the service recipient. The appellant removed all the materials arising out of these processes and transported and dumped them at specific places.

Effective from September, 2006 the service recipient had been reimbursing the service tax on the very same activity and the appellant was discharging service tax on the said activity under the category of "Site formation and clearance, excavation and earthmoving and demolition service".

The dispute in the present proceedings is for the period prior to September, 2006.

The CCE, Nagpur confirmed a Service Tax liability of Rs.1.64 crores along with interest and imposed penalties. An amount of Rs.1.36 crores paid by the appellant under protest was also appropriated by the adjudicating authority.

Against this order the appellant is before the CESTAT.

It is the submission of the appellant that the activity conducted by them would not come within the purview of site formation and clearance, excavation and earth moving and demolition services. Inasmuch as since a bundle of activities have been undertaken by the appellant and it is transportation which is the most predominant activity, the demand is not sustainable. Consequently, it is their contention that the impugned demand is not sustainable. However, the payment of ST on the aforesaid activity after September, 2006 is admitted by the appellant. It is further submitted that imposition of equivalent amount of penalty under Section 78 is unsustainable in law as the non-payment/delayed payment of service tax was purely on account of non-reimbursement of the service tax amount by the recipient. Reliance is placed on the decision in Shri Ganta Ramanaiah Naidu vs. CCE - (2011-TIOL-76-CESTAT-BANG) in this regard.

The Revenue representative reiterated the findings of the adjudicating authority and also submitted that even after the matter was clarified by the Board vide letter F.No. 232/2/2006-CX.4 dated 12/11/2007the appellant did not discharge the balance ST liability nor did they discharge the interest liability; that the conduct of the appellant is defiance and, therefore, the order of the adjudicating authority needs to be upheld.

The Bench perused the work order dated 06/08/2004 and observed that as per the same a lumpsum amount is given to the appellant for the work carried out, which includes hiring of material handling equipment for removal of all type of material in all kinds of strata with its drilling, excavation, loading, transport and dumping, spreading and dozing at specified places, of the material removed.

After extracting the definition of "Site formation and clearance, excavation and earthmoving and demolition" as contained in section 65(97a) of the FA, 1994, the Bench observed -

"5.1 From the above definition, the appellant's activity of drilling, excavation, etc. falls clearly within the scope of taxable service as defined in law. The very fact that the appellant has been discharging service tax liability since September, 2006 under the very same category also shows that the contention of falling outside the purview of service tax liability has been made only as a matter of convenience and not out of any conviction. Therefore, we uphold the classification of service under "Site formation and clearance, excavation and earthmoving and demolition service" as defined in law. Consequently, the appellant is liable to discharge service tax liability on the value received for the services rendered.

5.2 There is no evidence before us to show that transportation activity was the predominant activity, nor any attempt has been made by the appellant as to the amount received in respect of transportation activity or that transportation was predominant activity and the other activities undertaken by the appellant were ancillary to transportation. In the absence of any evidence in this regard, we are unable to accept the contention of the appellant that they are not liable to discharge service tax liability on the aforesaid activity. Accordingly, we uphold the service tax demand of Rs.1,64,23,993/- confirmed in the impugned order. Once the liability to service tax is confirmed, liability to pay interest is automatic and consequential and accordingly confirmation of interest on the above demand is also sustainable in view of the provisions of Section 75 of the Finance Act, 1994."

In the matter of penalties imposed on the appellant, the Bench observed that -

++ Penalty under Section 76 is attracted for delay or default in payment of service tax. There is no mensrea required to be proved for the imposition of the said penalty.

++ The penalty under Section 77 is for violation of the provisions of the statute. The appellant had not obtained any registration nor did they discharge the statutory obligation or the service tax liability under Chapter V of the Finance Act, 1944 or the Service Tax Rules. Therefore, penalty of Rs.1,000/- under Section 77 is fully justified.

++ Penalty under Section 78 would also imposable in addition to the penalty under Section 76, if the five elements required for such imposition is present in any transaction. In the present case, it is a fact that the appellant did not obtain any registration nor did they file any statutory returns. Neither the appellant has followed any of the statutory provisions. In the absence of compliance to any of the provisions of law, contravention of the law and suppression of facts stand fully established. Therefore, the appellant have no case for waiver of penalty under Section 78.

++ The only contention is that the appellant did not discharge the service tax liability because the service-recipient did not reimburse the same to them and the service-recipient was in correspondence with the Government of India in this regard. Service tax liability is not dependent whether the service recipient makes the payment of service tax or not. The taxable event is the rendering of service and liability has to be discharged on receipt of consideration. In the present case, it is not in dispute that the appellant had rendered the service and received consideration for rendering of such service. Merely because the service recipient did not pay the service tax liability initially, that would not take away/obliterate the liability on the service provider to discharge the tax. If this plea is accepted, it would make the taxable event as receipt of service tax from the recipient of the service which is not the law. Therefore, this plea of the appellant is not acceptable or satisfactory explanation and Penalty is imposable u/s 78.

Holding that there is no merit in the appeal, the same was dismissed.

(See 2014-TIOL-287-CESTAT-MUM)