Case Law Details
Commissioner of CGST & Central Excise Vs Dholu Construction & Projects Ltd. (CESTAT Delhi)
Composite Mining Contracts Cannot Be Vivisected for Retrospective Service Tax; Site Formation Tax Not Applicable Because Essential Character of Contract Was Mining Activity; Revenue Cannot Reclassify Mining Operations as Site Formation to Tax Pre-2007 Activities: CESTAT; Introduction of Separate Mining Service Entry Shows Earlier Tax Entries Did Not Cover Mining: CESTAT.
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi dismissed the Revenue’s appeal against the Order-in-Original dated 24.08.2020, which had dropped service tax demand for the period 16.05.2005 to 31.05.2007 on activities relating to overburden removal, excavation, and truck loading of lignite undertaken by the respondent for Rajasthan State Mines and Minerals Ltd.
The Department alleged that the respondent’s activities were taxable under “Site Formation and Clearance, Excavation and Earthmoving and Demolition Services” under Section 65(97a) of the Finance Act. A show cause notice dated 30.09.2010 proposed recovery of Rs. 2.84 crore along with interest and penalties. The respondent contended that the activities formed part of integrated mining operations and were correctly classifiable as “Mining Services”, which became taxable only from 01.06.2007. The respondent had accordingly obtained service tax registration under “Mining Services” from 25.06.2007 after the introduction of Section 65(105)(zzzy).
The Tribunal observed that the respondent’s principal activity involved extraction of lignite, removal of overburden, excavation of lignite seams, and loading lignite into trucks, with payment linked to quantity of lignite produced and loaded. The agreement and bills reflected rates based on production and loading of lignite. The Tribunal held that the essential character of the contract was mining activity and incidental activities such as excavation and site formation could not be separated from the composite mining contract for taxation purposes.
Relying on the Tribunal decision in M. Ramakrishna Reddy, the Tribunal reiterated that a comprehensive mining contract cannot be vivisected to levy service tax on incidental site formation activities prior to the introduction of taxable “Mining Services” from 01.06.2007. The Tribunal also referred to decisions in Indian National Ship Owners Association and Board of Control for Cricket in India to hold that introduction of a new taxable entry implies that such activity was not covered under earlier entries.
The Tribunal further relied on CBEC Instruction dated 12.11.2007 clarifying that coal cutting, mineral extraction, and lifting up to pithead are integral parts of mining operations and were not taxable before 01.06.2007. It also noted that the Department itself accepted the respondent’s classification under “Mining Services” after 01.06.2007.
Holding that incidental site formation activities could not override the principal mining activity for retrospective taxation, the Tribunal upheld the adjudicating authority’s order and dismissed the Revenue’s appeal.
FULL TEXT OF THE CESTAT DELHI ORDER
The Revenue is in appeal challenging the Order-in-Original1 dated 24.08.2020, dropping the demand of service tax for the period 16.05.2005 to 31.05.2007 under the category of “Site Formation and Clearance, Excavation and Earthmoving and Demolition Services” as the activities of overburden, excavation, and truck loading of lignite undertaken by the respondent were classifiable as “Mining Services”, which were introduced with effect from 01.06.2007 and therefore, were not taxable prior to the said date.
2. The respondent is engaged in providing services to M/s. Rajasthan State Mines and Minerals Ltd. They had not taken any registration with the Service Tax Department before 25.06.2007 as the activities carried out were integrated to mining operations which were not taxable. Subsequently, on 25.06.2007, the respondent took registration as the activities constituted “Mining Services”, which were made taxable from 1.06.2007 under Section 65(105)(zzzy). On the basis of an audit conducted, the Department was of the view that the activities performed by the respondent were classified as “site formation and clearance, excavation, and earthmoving and demolition services” under Section 65(97a). Show cause notice dated 30.09.2010 was issued proposing demand of Rs.2,84,64,166/- along with interest and penalties under Section 76, 77 and 78 of the Act. The Adjudicating Authority by the impugned order, relying on the earlier decisions of the Tribunal and the Circular issued by CBEC held that the service rendered by the assessee would fall under mining services, which were not taxable during the period in question. Hence, the present appeal has been filed by the Revenue.
3. The basic issue for consideration is whether the services provided by the respondent falls under “Site formation and clearance, excavation and earthmoving and demolition services” under Section 65(97a) of the Act, as claimed by the Revenue or under “Mining Services” under Section 65(105)(zzzy) as classified by the respondent.
4. The “Mining Services” were brought under the tax net vide Section 65(105)(zzzy) of Chapter V of the Act w.e.f. 01.06.2007. The said entry provides for service tax on the services provided or to be provided to any person by any other person in relation to mining or mineral, oil or gas. The principal and predominant activity undertaken by the respondent is excavation of successive ,lignite seams exposed after removal of overburden/interburden and loading of such ROM lignite into trucks at mines pit. For rendering this mining service, the respondents are paid charges based on PMT of Lignite produced and loaded in the trucks. Their contract and all the bills categorically indicate the rates PMT of Lignite produced and loaded. Their principal and essential activity is extraction of mineral from the ground and their remuneration is linked to such extraction. The respondent had agreed upon rendering service of raising of lignite at RSMM Giri Lignite Mine at Barmer – Rajasthan strictly as per mining drawings and cannot be classified under site formation and clearance, excavation and earthmoving and demolition services. Thus, the main activity or the purpose of providing service for carrying on mining activity and the other activities such as excavation or incidental activities. The submission of the respondent had been that the whole contract cannot be classified by picking and choosing some incidental activity in total disregard of the main activity, which seems to be fair in view of the earlier decisions.
5. The controversy of classification has been decided by the Tribunal in the case of Ramakrishna Reddy versus Commissioner of Customs and Central Excise & Service Tax, Tirupati2, where the Bench found that essential character of the work is mining which became taxable only w.e.f. 01.06.2007 and the period in question is prior to 01.06.2007 and, therefore, it cannot be said that the entire service rendered by the appellant comes under the category of Site Formation. The relevant paragraph of the decision reads as: –
“10.2 If the above provision is applied, the services rendered would amount to only mining services. As the contract is a comprehensive one for mining, it cannot be vivisected for levying service tax on that portion of the activity relating to “Site Formation” in the light of the decision of the Tribunal in the case of Daelim Industrial Company v. CCE, Vadodara [2006 (3) S.T.R. 124 (Tri.-Del.) = 2003 (155) E.L.T. 457 (Tri.-Del.)] upheld by the Apex Court [2007 (5) S.T.R. J99 (S.C.) = 2004 (170) E.L.T. A181 (S.C.)]. Consequently, we hold that the services rendered by the appellant are classifiable only under the category of “Mining Services” and therefore they would not be liable to service tax prior to 1-6-2007. In the light of the above finding, there is no justification for imposition of any penalty. Hence, we allow the appeal with consequential relief.”
6. The appeal filed by the Department in the above case before the Apex Court was dismissed as withdrawn on account of low monetary effect, and therefore, the law laid down by the Tribunal is binding.
7. We may also consider the decision in the case of Indian National Ship Owners Association versus Union of India 3, where the High Court held that when there was no entry covering transport by sea, legislature could have easily provided for such an entry. The absence of such entry leads to the conclusion that the chartering of vessels was not covered by any entry prior to insertion of Entry (zzzzj) and therefore, it must be held that services were not specified under any entry and hence were not liable to service tax till the said entry was introduced. Applying the same analogy, the activity of mining was not taxable prior to 1.06.2007 and the demand of service tax for the period prior to introduction of the mining services is unsustainable by incorporating it under the category of site formation.
8. The principle that introduction of new Tariff Entry implies that coverage in new tariff for the purpose of tax was an area not covered by earlier entry as enunciated by the Tribunal in Board of Control for Cricket in India versus CST, Mumbai4 supports the case of the assessee that new entry of mining service was made taxable w.e.f. 1.06.2007 and without making any change in the definition of Site Formation Service implies that the activity of mining was not taxable prior to 1.06.2007.
9. The Adjudicating Authority has also considered the issue in the light of the CBEC Instruction F.No.232/2/2006–CX.4 dated 12.11.2007, clarifying that the activity of mineral extraction and lifting them up to the pit head are essential integral processes and part of mining operations and since the mining activity has been made taxable from 1.06.2007, such activities being part of mining operations itself, no service tax is leviable on such activities prior to the said date. The relevant provisions of the Instructions are set out below:-
“4. Coal cutting or mineral extraction and lifting them up to the pithead:
These activities are essential integral processes and are part of mining operations. As stated earlier, mining activity has been made taxable by legislation under the Finance Act, 2007 (w.e.f. 1.6.2007). Prior to this date, such activities, being part of mining operations itself are not subjected to service tax. Therefore, no service tax is leviable on such activities prior to the said date.”
Further, CBEC Circular No.123/5/2010-TRU dated 24.05.2010 clarified that site formation, clearance excavation, earth, moving and demolition services are attracted only if the service providers provide the services independently and not as part of a complete work such as laying of cables under the road.
10. From the facts of the present case, we find that the respondent has been paying service tax since 1.06.2007 under the category of “Mining Services” and the same has been accepted by the Department. In that view of the matter, it is not open to the Department to tax the same activity under a different category merely because the mining activity was not taxable at that time. The terms of the agreement reveals that it was a comprehensive agreement for all the three activities, i.e. excavation/drilling, and removal of the overburden, lignite, cutting, or mineral extraction, and lifting them up to the pit head and loading from pit head to trucks. In terms of the law laid down in the decisions referred to above, a comprehensive contract cannot be vivisected for charging service tax relating to site formation service. We, therefore, agree with the view taken by the Adjudicating Authority that since the essential character of work undertaken by the respondent was mining of minerals, the activity would be classifiable under Mining Service w.e.f. 01.06.2007. Also, as held in M. Ramakrishna Reddy, activity of site formation was merely incidental to or in relation to contract of mining of ore undertaken and since it is a composite contract the said activity cannot be vivisected to levy service tax.
11. We do not find any reason to interfere with the impugned order and the same is hereby affirmed. The appeal filed by the Revenue is, accordingly dismissed.
[order pronounced on 24th April, 2026.]
Notes:
1 No.JOD-EXCUS-000-COM-0019-20-21
2 2009 (13)STR 661 (Tri.-Bang.)
3 2009(14 )STR 289 (Bom.)
4 2007(7) STR 384 (Tri. -Mum.)
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