Katni Bauxite Pvt Ltd Vs Principal Commissioner of CSGT (CESTAT Delhi)
CESTAT Delhi: Mining Lease agreement Date crucial for service tax liability on royalty paid to government: CESTAT Delhi
The impugned order confirmed demand along with interest and penalty against Katni Bauxite Pvt Ltd on the allegation that service tax had not been paid under the Reverse Charge Mechanism on royalty paid to the Government.
The appellant contended that the Mining Lease Agreement had been entered into prior to 01.04.2016 and, therefore, the appellant was entitled to the benefit available under Section 66D of the Finance Act, 1994. However, the Mining Lease Agreements had not been placed either before the adjudicating authority or before the first appellate authority.
CESTAT Delhi observed that the matter therefore required remand so that the lease agreements could be considered and the issue could be decided in conformity with the decisions relied upon by the learned counsel for the appellant. The Tribunal referred to decisions including M/s Tirupati Build-Con Private Limited V/s Commissioner, Central Goods Service Tax & Central Excise, Customs, Jabalpur; Principal Commissioner, CGST & Central Excise V/s S.R. Traders; M/s Shrawan Kumar Pathak Vs. Commissioner of Central Excise & Central GST, Jabalpur; Madhya Pradesh State Mining, Corporation Ltd. Versus Principal Commissioner of CGST & Central Excise, Bhopal; CESC Ltd. V/s The Commissioner of Central Tax, CGST & Central Excise, Kolkata; and M/s. National Aluminium Company Limited Versus Commissioner of CGST & CX, Bhubaneswar.
The Tribunal also referred to Final Order No.50660 of 2023 dated 09.05.2023 in The Principal Commissioner, CGST & Central Excise, Bhopal vs. M/s. S. R. Traders, which relied upon the decision in M.P. State Mining Corporation Ltd.
In the referred decision, the second category of demand concerned alleged short-payment of tax on dead rent and surface rent paid by the appellant to the State Government, treated as taxable under reverse charge in relation to the grant of mining rights. The contention was that the service had been received prior to 01.04.2016, when such services from the Government were not subject to tax.
The Tribunal referred to Section 66B of the Finance Act, 1994, under which service tax was levied on taxable services. It observed that, for the purpose of levy of service tax, the taxable event was construed as the time when the service was provided or agreed to be provided. Therefore, determining the point of time when the activity was provided or agreed to be provided was relevant to determine whether the levy applied.
In that case, the agreement between the appellant and the State Government for grant of mining rights had been executed on 02.01.2016. On that date, transactions involving assignment of the right to use natural resources were not taxable. The Tribunal also referred to Section 66D as it existed before 01.04.2016, under which, barring specified exceptions, services provided by the Government were covered under the negative list and were not subjected to service tax.
With effect from 01.04.2016, Section 66D clause (a)(iv) was amended and all services provided by the Government to a business entity were excluded from the negative list. Consequently, services rendered by the Government to a business entity became chargeable to service tax from 01.04.2016.
The referred decision held that the appellant had received services relating to assignment of the right to use natural resources from the State Government by virtue of the agreement dated 02.01.2016. Accordingly, the service tax provisions in force before 01.04.2016 were applicable, and no tax implication could be fastened for the relevant period because the grant of natural resources was not excluded from the scope of the negative list prior to 01.04.2016.
In the present matter, CESTAT Delhi held that the Mining Lease Agreements had not been placed before the lower authorities and therefore the matter required reconsideration. The impugned order was set aside and the matter was remanded to the adjudicating authority to decide the issue in accordance with the directions and strictly following the law laid down by the Tribunal.
The appeal was accordingly allowed by way of remand.
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