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.
Cases Discussed
- M/s. National Aluminium Company Limited Versus Commissioner of CGST & CX, Bhubaneswar, 2024(5) TM! 621 – CESTAT Kolkata.
- Principal Commissioner, CGST & Central Excise V/s S.R. Traders, (2023) 10 Centax 253 (Tri.-Del) [24-04-2023].
- Madhya Pradesh State Mining, Corporation Ltd. Versus Principal Commissioner of CGST & Central Excise, Bhopal, (2023) 10 Centax 253 (Tri.-Del) [24-04-2023].
- M/s Tirupati Build-Con Private Limited V/s Commissioner, Central Goods Service Tax & Central Excise, Customs, Jabalpur, Service Tax Appeal No. 51052 Of 2020.
- M/s Shrawan Kumar Pathak Vs. Commissioner of Central Excise & Central GST, Jabalpur, Service Tax Appeal No. 55131 of 2023.
- CESC Ltd. V/s The Commissioner of Central Tax, CGST & Central Excise, Kolkata, ServiceTax Appeal No. 75260 of 2023.
Argued by Adv. Mahesh Raichandani i/b UBR Legal.
FULL TEXT OF THE CESTAT DELHI ORDER
By the impugned order1, the demand along with interest and penalty has been confirmed against the appellant. The allegations against the appellant is that he has not paid the service tax under the Reverse Charge Mechanism on Royalty paid to the Government. The plea taken by the appellant is that they had entered into the Mining Lease Agreement prior to 01.04.2016 and therefore, they are entitled to the benefit as provided in the provisions of section 66D of the Finance Act, 1994. However, we find that the Mining Lease Agreements were neither placed before the adjudicating authority nor before the first appellate authority and in that view the matter needs to be remanded back to consider the lease agreements and decide the issue inconformity with the decisions as referred to by the learned counsel for the appellant, the details whereof are as under:
“a) M/s Tirupati Build-Con Private Limited V/s Commissioner, Central Goods Service Tax & Central Excise, Customs, Jabalpur (Service Tax Appeal No. 51052 Of 2020)
b) Principal Commissioner, CGST & Central Excise V/s S.R. Traders (2023) 10 Centax 253 (Tri.-Del) [24-04-2023]
c) M/s Shrawan Kumar Pathak Vs. Commissioner of Central Excise & Central GST, Jabalpur, Service Tax Appeal No. 55131 of 2023 d)
d) Madhya Pradesh State Mining, Corporation Ltd. Versus Principal Commissioner of CGST & Central Excise, Bhopal (2023) 10 Centax 253 (Tri.-Del) [24-04-2023]
e) CESC Ltd. V/s The Commissioner of Central Tax, CGST & Central Excise, Kolkata (ServiceTax Appeal No. 75260 of 2023)
f) M/s. National Aluminium Company Limited Versus Commissioner of CGST & CX, Bhubaneswar 2024(5) TM! 621 – CESTAT Kolkata.”
2. The Principal Bench in the Final Order No.50660 of 2023 dated 09.05.2023, titled as The Principal Commissioner, CGST & Central Excise, Bhopal vs. M/s. S. R. Traders relied on the decision of the Tribunal in M.P. State Mining Corporation Ltd.2, which we may refer herein below:
“13. The second category of demand pertains to the alleged short-payment of tax to the extent of dead rent surface rent paid by the appellant to the State Government, which has been held to be taxable on reverse charge basis against the receipt of service concerning grant of mining rights.
14. The contention of the learned counsel for the appellant is that the demand is not sustainable as the service was received prior to 01.04.2016, when such services from the Government were not subject to tax.
15. The charging provision prescribing levy of tax is section 66B of the Finance Act and it is as follows:
“66B. There shall be levied a tax (hereinafter referred to as the service tax at the rate of fourteen percent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.”
16. Thus, for the purpose of levying service tax, the taxable event is construed as the time when the service is provided or agreed to be provided. Thus, in order to determine whether levy of tax is applicable on a particular activity, it is necessary to determine the point of time when such activity is provided or agreed to be provided. In the present case, the agreement between the appellant and State Government for grant of mining rights was executed on 02.01.2016 and on this date, the transactions involving) assignment of right to use natural resource was not taxable.
17. In this connection section 66D of the Finance Act, as it existed prior to 01.04.2016, can be referred to and it is as follows:
“66D The negative list shall comprise of the following services, namely:-
(a) services by Government or a local authority excluding the following services to the extent they are not covered elsewhere-
(i) services by the Department of Posts by way of speed post, express post, life insurance services provided to a person other than Government;
(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers; or
(iv) Support services, other than services covered under clauses (i) to (i) above, provided to business entities”
18. Thus, prior to 01.04.2016, barring a few exceptions, all services provided by the Government were covered under the negative list and accordingly, not subjected to service tax.
19. With effect from 01.04.2016, however, section 66D calve is (a)(iv) of the Finance Act was amended and ‘all services provided by the government to a business entity were excluded from the negative list of services. Thus, services rendered by the government to a business entity became chargeable to service tax with effect from 01.04.2016.
20. 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.”
3. The impugned order is, therefore, set aside and the matter is remanded to the adjudicating authority to decide in terms of the directions made above and strictly following the law laid down by the Tribunal. The appeal is allowed by way of remand.
[Operative portion of the order already pronounced in open court]
