Madhya Pradesh State Mining Vs Pr. Commissioner (CESTAT Delhi)
CESTAT Delhi held that allocation of area development charges by the State Government to the appellant to meet up its administrative expenses without performance of any service in exchange of the amount cannot be treated as consideration towards a service.
Facts- 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. In some cases, the appellant also formed joint ventures with the contractors to jointly undertake the mining operations.
Pursuant to audit objections, a show cause notice was issued to the appellant proposing a demand of service tax of Rs. 22,84,16,550/- with interest and penalty for the period from April 2013 to March 2017. This demand was confirmed by the order that has been impugned in this appeal.
Conclusion- In South Eastern Coalfileds, the Tribunal held that liquidated damages recovered on account of breach or non-performance of contract are not consideration in view of any service but are in the nature of deterrent imposed so that such a breach or non-performance is not repeated.
In the present case, the appellant received services in relation to assignment of right to use natural resources from the State Government by virtue of the agreement dated 02.01.2016 and, therefore, the provisions of service tax, as were in force prior to 01.04.2016, would be applicable. Grant of natural resources was not excluded from the scope of negative list prior to 01.04.2016 and so no tax implication can be fastened on the appellant for such period.
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. These charges were paid to the appellant for meeting its administrative expenses, especially since the appellant is operating as a public sector undertaking of the State Government. 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.
FULL TEXT OF THE CESTAT DELHI ORDER
M/s. Madhya Pradesh State Mining Development Corporation1 has filed this appeal to assail the order dated 27.03.2019 passed by the Principal Commissioner, CGST and Central Excise, Bhopal2 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 Act3.
2. The appellant was granted rights to mine sand, rock, phosphate, flag stone, and coal by the Madhya Pradesh State Government4. 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. In some cases, the appellant also formed joint ventures with the contractors to jointly undertake the mining operations.
3. Pursuant to audit objections, a show cause notice was issued to the appellant proposing a demand of service tax of Rs. 22,84,16,550/- with interest and penalty for the period from April 2013 to March 2017. This demand was confirmed by the order that has been impugned in this appeal.
4. The transactions with the corresponding allegations in the show cause notice and the findings in the order of the Principal Commissioner are tabulated below:
