The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that the allocation of area development charges by State Government is not consideration towards service and hence service tax is not leviable.
M/s. Madhya Pradesh State Mining Development Corporation filed the appeal to assail the order passed by the Principal Commissioner, CGST and Central Excise confirming the demand of service tax with interest and penalty after invoking the extended the period of limitation contemplated under the proviso to section 73(1) of the Finance Act.
The appellant was granted rights to mine sand, rock, phosphate, flag stone, and coal by the Madhya Pradesh State Government. In lieu of these rights, the appellant was required to pay royalty to the State Government. The mining operations were carried out by the appellant either directly or through contractors for disposal of sand.
The issue that arises for consideration is whether the appellant provided any services to the State Government against the area development charges.
During the relevant period, the appellant received area development charges from the State Government to meet its administrative expenses. These amounts have been paid pursuant to the order issued by State Government. The impugned order has sought to tax these amounts by treating them as consideration towards provision of taxable service.
A Two-Member Bench of Justice Dilip Gupta, President and Hemambika R Priya, Technical Member observed that “There is no mention of any service which would be performed by the appellant in exchange of such amount. Thus, allocation of area development charges by the State Government can be regarded as income of the appellant, but it cannot be treated as consideration towards a service.”
“For a service to be taxable, it is necessary that there should exists a service provider and service recipient relationship between the two parties. On a careful perusal of order dated 30.12.1996 issued by the State Government, it is apparent that the appellant was made entitled to 30% of the area development charges received by the State Government” the Bench noted.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
