By TIOL News Service

MUMBAI, SEPT 17, 2014: THE facts are that the Applicant is engaged in mining of coal and sale thereof to various buyers. Coal is sold at base price plus other charges such as "surface transport charges" plus statutory levies such as excise duty, sales tax/VAT, royalty etc.

SCNs were issued to the Applicant proposing demand of service tax on surface transport charges under the head of "Cargo Handling Services" alleging that the said charges is on account of loading, unloading and transportation of coal which falls under the said head.

Seven orders-in-original were passed by the CCE, Nagpur confirming a total Service Tax demand of Rs.51.51 crores and to it were added an equivalent penalty u/s 78 of FA, 1994 so that the order looks awesome - after all, alleging suppression is considered child's play and what's an order if it ain't in CRORES!

The applicant is before the CESTAT seeking a stay from recovery of Rs.100 crores plus of adjudged dues.

It is submitted that the demand of service tax is not sustainable on the ground that appellant is engaged in mining of coal and the mined coal is sold on principal to principal basis to various customers, hence they are not a cargo handling agency as such no cargo handling service exists. Further, the surface transport charges is billed and charged to the buyers of the coal; that surface transport charge though shown separately, it is part of the sale value of the coal. The sale value including the surface transport charges is the actual sale value and on that value only the excise duty and/or sales tax is charged and the same is paid to the exchequer. It is also submitted that during the course of sale if any value is liable to payment of excise duty/sales tax, it is part and partial of sale value of traded goods and sale transaction does not attract service tax. Following case laws are relied upon in support Bharat Sanchar Nigam Ltd. Vs. UOI - 2006-TIOL-15-SC-CT-LB & Mahanadi Coalfields Ltd. Vs. Commissioner of Central Excise, Customs & Service Tax, BBSR-I. It is further submitted that the demand is time barred as there is no suppression of fact on their part.

The AR supported the findings of the Adjudicating Authority.

The Bench observed -

On merits:

++ The activity of loading, unloading and transportation of coal within mining area though may independently get classified as Cargo Handling Service but in the facts of the present case the Applicant is admittedly primarily engaged in the mining of coal and the said coal is sold on principal to principal basis to various customers. During the course of mining of coal, various activities take place before sale of the goods. In such case cost of all such activities get absorbed in the sale of the coal. Even if it is accepted that the activity in question is of cargo handling service but since it is consumed captively in or in relation to manufacture and clearance of coal, it becomes part and parcel of the manufacture and sale of coal.

++ From perusal of the sale invoice it is found that the surface transportation charges, on which service tax demanded, has been shown in the invoices as part of the sale value of the coal and on the value including the surface transportation charges, the applicant has discharged the central excise duty as well as sales tax. This clearly establishes that the value including the surface transportation charges is the sale value of coal. It is now settled law by the Supreme Court in Bharat Sanchar Nigam Ltd.'s case that in respect of sale of goods no service tax is leviable.

++ In case of sale of manufactured goods, even as per Section 4 of the Central Excise Act, 1944 and Central Excise Valuation Rules, 2000, the transaction value is the value which is charged for sale of the goods at the place of removal. In cases where the coal is sold at loading point or at railway wagon, such place of sale becomes the place of removal and all the charges (including ‘surface transport charges') upto the place of removal is statutorily includible in the transaction value i.e., sale value of coal. In a nutshell, sale value of the goods cannot be charged to service tax.

Limitation:

++ The Applicant is a central excise assessee for manufacture of coal and discharging excise duty and filing periodical returns. They admittedly were discharging excise duty on the value including surface transport charges. Moreover, they are also registered under Service Tax provisions for discharging service tax on transportation under reverse charge basis. In view of these facts, it cannot be said that the Applicant has suppressed the material facts.

Holding that the Applicant has made out a strong prima facie case,the Bench waived the pre-deposit of adjudged dues and grantedan unconditional stay in the matter.

(See 2014-TIOL-1784-CESTAT-MUM )