Coal Beneficiation Not Taxable as Business Auxiliary Service Before 2007: CESTAT Delhi

Principal Commissioner of CGST & Central Excise Vs Aryan Coal Benefications Pvt Ltd (CESTAT Delhi)

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi dismissed the Revenue’s appeal against the order dropping service tax demand on the respondent for the activity of coal beneficiation under the category of “Business Auxiliary Service”. The dispute arose after departmental audit alleged that the respondent had suppressed taxable value by not declaring amounts received under various heads, including consultancy and professional fees, loading/unloading of coal, commission income, provisional beneficiation receipts and bonus claims for ash, and had misstated taxable value in ST-3 returns. Show cause notices demanded service tax of ₹17,50,26,820 for the period up to 2006-07 and ₹11,54,70,710 for April 2008 to September 2008. The adjudicating authority dropped the proceedings, following which the Revenue challenged only the finding that beneficiation of coal prior to 1 June 2007 was not taxable as Business Auxiliary Service.

The Revenue argued that washing and beneficiation of coal did not amount to manufacture and therefore constituted taxable Business Auxiliary Service, relying upon the Supreme Court decision in M/s Tata Iron & Steel Co. Ltd. The respondent relied upon the Tribunal’s earlier decision in its own case, wherein it had been held that beneficiation of coal formed part of mining activity and became taxable only after the introduction of Mining Service with effect from 1 June 2007.