Blasting Services for Digging Wells for Farmers Qualify as Agricultural Services: CESTAT Sets Aside Tax Demand [Read Order]

The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that blasting services used for digging wells for farmers qualify as agricultural services.

Narayan Lal, the appellant, runs a firm called Bijason Drilling. He provides blasting services using explosives to dig bore wells, tube wells, and wells. These services were mainly provided to farmers for irrigation. The tax department claimed that he was not registered under service tax and had not paid service tax for the period from October 2013 to June 2017.

A show cause notice was issued on 10 April 2019. The department stated that after the Negative List system started from 1 July 2012, blasting services became taxable, even when used for agricultural purposes. The department alleged that the appellant earned about Rs. 2.5 crore during this period. Services given to government bodies were treated as exempt, but service tax was demanded on the amount received from farmers.

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The Adjudicating Authority dropped the tax demand, holding that the services were related to agriculture and were covered under the Negative List and exemption notification. The department appealed against this order. The Commissioner(Appeals) allowed the department’s appeal and set aside the earlier order. After this, the appellant approached CESTAT.

The appellant’s counsel argued that blasting is not a separate service. It is part of the main work of digging wells. They argued that blasting cannot be taxed separately. He also argued that no separate payment was taken for blasting and service tax cannot be charged without consideration. They also argued that blasting helps in making water available, which is necessary for farming and such services are directly connected with agriculture.

The department’s counsel argued that blasting services are not directly linked to agricultural production and do not fall under the Negative List. They also argued that the appellant did not submit enough documents to support his claim.

The two-member bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) observed that water is essential for farming and services that help in providing water to fields are connected with agriculture. The tribunal also observed that the law uses broad language and covers more activities than those specifically listed.

The tribunal explained that blasting services used for digging wells in agricultural fields are agricultural services. It did not agree with the narrow view taken by the Commissioner (Appeals).

The department argued that documents were not properly submitted so the tribunal decided to send the matter back to the Adjudicating Authority. The earlier order was set aside and the case was remanded for fresh decision after giving the appellant a chance to submit documents. The appeal was allowed by way of remand.

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