ST - Taxability is not determined by sec 67 of Finance Act, 1994 but by coverage in sec 65: CESTAT
By TIOL News Service
MUMBAI, JUNE 22, 2018: THE appellant entered into a contract with M/s Hardesh Ore Ltd for providing machinery and equipment at Kalay mine from 2006-07 and renewed for the years thereafter.
In addition, appellant was also required to sprinkle water, transport, raw as well as reject ores, to the designated places at the mine and to provide fuel and lubricants for the vehicles.
The dispute is about taxability of consideration received for water sprinkling, transport of 'run of mine' supply of fuel/lubricants and supply of machinery and equipment as provider of 'site clearance and formation service' before 1 st June 2007 and as provider of 'mining services' thereafter.
The demand that was confirmed by the CCE, Goa in the impugned order pertains entirely to payments received from M/s Hardesh Ore Ltd. between 1 st April 2006 and 31 st March 2011 and on that portion of 'mining income' ascertained from their final accounts on which tax had, admittedly, not been paid.
In appeal, it is submitted that 'mining services' were subject to tax only with effect from 1 st June 2007 and services in connection with mining is not liable to be taxed before that unless identifiable as a separate taxable service during the earlier period.
Moreover, rule 5 of ST Valuation Rules, 2006 excludes the payments from the recipient for being 'pure agent'; that Board Circular no. 232/2/2006-CX.4 dated 12th November 2007 clarified that transportation within mines is chargeable to tax as 'cargo handling service' or 'goods transport by road service', as the case may be, and notification no. 34/2004-ST exempts transportation charges below Rs.750/- per consignment from tax. Reliance is also placed on the decision in KanakKhanz Udyog - 2017-TIOL-1252-CESTAT-DEL.
The AR while supporting the impugned order adverted to the scope of section 65 (97a) of FA, 1994 and the inclusive nature of the definition therein to contend that the very same activities were continued within 'mining services' which was incorporated to provide a sharpened appreciation of the legislative intent and that there can be no justification in the claim of the appellant that it was only with effect from 1 st June 2007 that any activity at a mine could be subjected to tax. Reference in this regard is made to TRU letter no. 334/1/2007-TRU dated 28th February 2007 and in the matter of limitation to the decisions in Neminath Fabrics Pvt Ltd - 2011-TIOL-10-HC-AHM-CX and Dai IchiKarkaria Ltd - 2015-TIOL-1174-CESTAT-MUM]to contend that disclosure in statutory financial reports is not an adequate defence for pleading time bar.
The Bench considered the submissions and observed -
++ It is quite clear that water sprinkling is an activity that is required to prevent the dispersal of dust not just at the mines but in the surrounding area. It cannot, therefore, be held, as the adjudicating authority has, that this, being essential for mining operation, is to be treated as provision of 'mining service' or 'site formation and clearance service.' Water sprinkling is not a requisite for extracting the contents of a mine; at best, it may be considered as requisite for transportation of extracted ore which has been clarified to be a post-mining activity. While it may fall under some other category of taxable service, in the context of lack of any such proposal in the show cause notice, we are not required to follow that line of thought to its logical conclusion.
++ Supply of fuel/lubricant - Taxability is not determined by section 67 of Finance Act, 1994 but by coverage in section 65. Without examining the latter, an omnibus determination from the measure for value for taxation is not valid in law. Supply of goods is a trading activity and not a service acknowledged for taxation in Finance Act, 1994. There is no allegation that fuel and lubricant are inputs of the appellant for providing taxable service; if such had been so, their claim of exclusion could have been denied. Consequently, the income from supply of fuel/lubricants are beyond the scope of taxability.
++ Likewise, providing of machinery does not fall within the scope of tax as a separate taxing entry was incorporated later and the scope of section 65 (105) (zzzy) cannot be enlarged to include supply of tangible goods.
The impugned order was set aside and the appeal was allowed with consequential relief.
(See 2018-TIOL-1929-CESTAT-MUM)
