Calcutta HC Upholds CESTAT ruling: Service Tax Not Applicable to Mining Services Prior to June 1, 2007 [Read Order]

In the concerning case, the Calcutta High Court upheld the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) decision, confirming that the respondent-assessee was not liable for service tax on mining services before June 1, 2007. The Court agreed that the services were improperly categorized and the extended limitation period was not applicable due to a lack of evidence for intentional tax evasion. The revenue appellant's appeal was dismissed.

G.S.Atwal and Co. Engineering Pvt Ltd.,the respondent assessee, the revenue-appellant filed an appeal against the order of the CESTAT dated June 6, 2023.The revenue appellant raised several key legal questions for the court to consider.

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The two main issues raised in the appeal by the revenue appellant were, firstly, whether the respondent/assessee was liable to pay service tax for mining services provided before 1st June 2007, and secondly, whether the Department correctly invoked the extended period of limitation for issuing the show-cause notice and demanding service tax.

The respondent-assessee had provided details about their mining activities and maintained that service tax on such activities was only introduced from June 1, 2007. As a result, they did not apply for registration for mining services before this date.Therefore, they claimed that the extended period of limitation should not apply.

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The respondent- assessee challenged the Department's decision to divide their services into different categories such as cargo handling, site formation, and business auxiliary services and demand service tax accordingly. The assessee had shown the tribunal through work orders, that their services were a single, combined type and argued that the Department's attempt to divide them into different categories was unfair.

The assessee, as a mining contractor, argued that no service tax was due before June 1, 2007, when mining services were first taxed. The tribunal agreed, criticizing the Department for incorrectly splitting the mining activities and noting that no separate charges were listed in the contracts.

Additionally, the tribunal had noted a circular issued by the Central Board on November 12, 2007 (Circular FL No. 232/2/2006-Cx.4), which clarified that no service tax was applicable to mining activities before June 1, 2007. The relevant paragraph of the circular is quoted below:

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“Coal cutting or mineral extraction and lifting them up to the pithead:- These activities are essential integral processes and are part of mining operations. As stated earlier, mining activity has been made taxable by legislation under the Finance Act, 2007(w.e.f.1.06.2007). Prior to this date, such activities, being part of mining operations itself are not subjected to service tax. Therefore, no service tax is leviable on such activities prior to the said date.”

The court had noted that the tribunal had correctly decided that the extended period of limitation was not applicable. The show-cause notice only used terms like "omission" and "failure" without proving any intentional tax evasion by the assessee.

Since there was no evidence of such intent, the extended period of limitation couldn’t be used. Moreover, the assessee started paying service tax from June 1, 2007, and had uncertainties about its applicability before this date due to the way their services were divided.

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The bench had observed that the assessee  had highlighted that their contracts with reputable companies like TISCO Ltd. and ICML did not include service tax provisions because mining services were not taxed during that period. They also kept detailed records in their accounts and balance sheets, making any claim of suppressed facts unwarranted.

The revenue appellant  could not disprove these points before the tribunal.Therefore, the tribunal correctly concluded that the extended period of limitation could not be applied.

The court referred to Union of India vs. Indian National Shipowners Association (2011), where the Supreme Court upheld the Bombay High Court's decision that the services provided by the association's members did not fall under Section 65(105)(zzzy) of the Finance Act, 1994. The Union of India contended that a later amendment (Section 65(105)(zzzzj)) should apply, but the Supreme Court agreed with the High Court that the services were not related to mining minerals, oil, or gas. This decision supports the respondent/assessee's case.

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A coram comprising Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya dismissed the appeal filed by the revenue appellant, finding no reason to overturn the tribunal's decision as the respondent assessee was correctly granted relief.

To Read the full text of the Order CLICK HERE

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