In an important ruling, the Bangalore bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that extracting ore, operating mine and otherwise exercising all the powers and rights of the lessee under mining licence No. ML No.2552,are not taxable service under the category of “Mining of Mineral, Oil or Gas Services” in terms of Section 65(105)(zzzy) of the Finance Act, 1994.
BMM Ispat Limited, the appellant, engaged in the manufacture of excisable goods falling under Chapter 72 of the Central Excise Tariff Act, 1985 during the relevant period. Based on intelligence and further investigation by the Department, it revealed that during the period June 2010 to July 2011, they have rendered taxable services under the category of “Mining of Mineral, Oil or Gas Services” falling under Section 65(105)(zzzy) of the Finance Act, 1994 to their client viz. M/s. Sree Gavisiddeshwara Minerals, a partnership firm, of which the appellant also is a partner, but failed to discharge service tax.
Consequently, show-cause notice was issued to the appellant on 05.07.2012 for recovery of the service tax amounting to Rs.12,38,99,236/- along with interest and penalty. On adjudication, the demand was confirmed with interest and penalty. Hence, the present appeal.
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The appellant has submitted that the appellant is a partner in the partnership firm M/s. Sree Gavisiddeshwara Minerals under a reconstituted partnership deed dated 25.03.2010. The appellant has entered into an agreement dated 26.03.2010 with all the partners of the firm whereby the appellant is entrusted with the responsibility and work of extracting available ore, operating the mining and exercising of the powers under the mining lease licence bearing No. ML No.2552 and as a consideration for the said activity, the appellant was entitled to appropriate and retain 64% of the extracted/mined ore.
The firm M/s. Sree Gavisiddeshwara Minerals was formed to conduct the business of carrying on mining operations in respect of the major mineral Iron Ore and selling the mined and extracted minerals under the name of M/s. Sree Gavisiddeshwara Minerals. They were holding a Mining Lease licence bearing No. ML No.2552 over an extent of 134 hectares of land in Donimalai Range, Sundur Taluk.
It was stated that activity undertaken by the appellant i.e. extraction of Iron Ore from the leased mines is manufacture and the Iron Ore is classifiable under Chapter 26 of the Central Excise Tariff which attracts NIL rate of duty in view of the Effective Rate Notification No.4/2006-CE dated 01.03.2006 as amended. Further, he has submitted that Section 3 of Iron Ore, Manganese Ore Mines and Chrome Ore Mines Labour Welfare Cess Act, 1976 imposes cess on Iron Ore manufactured and hence, the same would be excisable goods.
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Further, he has submitted that the agreement between the firm’s partners, inter se, would not tantamount to rendering the service amongst themselves. He has submitted that since the appellant is a partner in the firm M/s. Sree Gavisiddeshwara Minerals, there being no service provider-service receiver, the activity would not be leviable to service tax. He has submitted that consideration received by the appellant is in the nature of his share of profit; hence cannot be construed as service or value of service for the purpose of levy of service tax as per the partnership deed. Further, he has submitted that the partnership firm is undertaking the activity as per the terms of the partnership deed and the partners of the firm and the partnership firm was one and the same prior to 01.07.2012; hence, there cannot be levy of service tax on the activity undertaken by the appellant.
Further submitted that service tax is leviable only if the services were provided and carried out for a certain value. If the value of the services provided is NIL, there cannot be an occasion for charging and collecting the service tax. He has submitted that it is a settled principle of law that when service is provided but no consideration or value thereof is charged and received, then there cannot be any reason to levy and collect service tax on the services rendered. No provision in the Finance Act, 1994 under which it is prescribed that even if the service provider has not charged any amount for service rendered, service tax still would be leviable on its deemed value, be it market value or fair value.
The Revenue has reiterated the findings of the Commissioner. He has further submitted that referring to the definition of taxable service viz. “Mining of Mineral, Oil or Gas Services” that what is taxable is the mining in relation to mineral, oil or gas which would mean mining of articles / goods other than mineral oil or gas would not be subjected to levy of service tax.
He has submitted that the taxable service is in relation to mining of mineral, oil or gas and the service should be provided or to be provided to any person by any person; service should be of mining or in relation thereto; service of mining should be of mineral, oil or gas and service will include exploitation of mineral, oil or gas and the subject matter of mining must relating to mineral, oil or gas; liquids are not covered and non-mineral items such as stone, sand , sand stone, marble etc. will not be covered in the scope of taxable services.
Further, referring to the clarification issued by the Board bearing No.334/1/2007-TRU dated 28.02.2007, he has submitted that various services like site formation, clearance, excavation, earth moving, drilling wells for production / exploitation of hydrocarbons etc. are relating to mining are individually classified under appropriate taxable service.
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Services provided in relation to mining of mineral, oil and gas are comprehensively covered under the proposed service tax levy; accordingly, services provided in relation to exploration and exploitation of mineral, oil or gas will be comprehensively brought under the Service Tax net.
The issue involved in the present case for determination is whether the services rendered by the appellant viz. extracting ore, operating mine and otherwise exercising all the powers and rights of the lessee under mining licence No. ML No.2552, a taxable service under the category of “Mining of Mineral, Oil or Gas Services” in terms of Section 65(105)(zzzy) of the Finance Act, 1994 and the appellant are required to pay service tax on the said services involving the period 30.06.2010 to 31.07.2017.
A plain reading of the reconstituted partnership of M/s. Sree Gavisiddeshwara Minerals which was originally registered on 27.08.2007 comprising of the seven partners which included the appellant as one of the partners. Later, the appellant was entrusted the work to extract the Iron Ore from the leased mine belonging to the partnership firm and for that, the appellant being one of the partners of the partnership firm was allowed a profit of 64% of the extracted ore and the other partners of 36% of the extracted ore.
A two member bench of Dr. D.M. Misra, Member ( Judicial ) And Mrs. R. Bhagya Devi, Member ( Technical ) viewed that the appellant being the Managing Partner received 64% of the extracted Ore as share of his profit in the partners firm. Also, it is absurd to say that for extraction of 36% of the Ore for the partners, the consideration for such service was equivalent to the value of 64% of the Iron Ore extracted and retained by the Managing Partner, the appellant. The bench set aside the impugned order and allowed the appeal.
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