Case Law Details
Dholu KCL JPF Joint Venture Company Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)
Dholu KCL JPF wins CESTAT Ahmedabad case! Quashing service tax demand, tribunal rules removal of overburden during lignite mining as ‘Mining Service.
The Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed the service tax demand on excavation of lignite and overburden removal of materials and classified the service under the category of ‘Mining Service’.
Dholu KCL JPF Joint Venture Company, the appellant assessee was a joint venture firm engaged in providing Mining Services and registered with service tax department under the category of Mining Service and the assessee had entered into a contract with Gujarat Industries Power Company Limited (‘GIPCL’) for hiring equipment with operators, maintenance staff, and facilities for excavation work.
The assessee appealed against the order passed by the adjudicating authority for confirming the service tax demand of amount of Rs. 49,54,78,789/- received by the assessee from GIPCL for Site formation and Clearance, Excavation, and Earth moving, and Demolition service.
Jigar Shah and Amber Kumrawat, the counsels for the assessee contended that removal of overburden/ inter-burden material was an integral process and part of the excavation of lignite and it was not a case where for extraction of minerals, site formation activities are carried out separately at the ground area like removal of the overburden material and then extracting of the minerals.
Also submitted was that overburden material was available in the mining area at various levels of mining of lignite. Thus it has been emphasized that the removal of over burden and interburden was undertaken throughout the mining process which was concerning the mining of lignite.
Prabhat K. Rameshwaram, the counsel for the department relied on the decisions made by the lower authorities and contended that for extraction of lignite, the assessee was supposed to remove the overburden of sand, murram, various clay levels, etc and the department entertained a view that the assessee is engaged in site formation and clearance of the mining area and the amount received by them should have been subjected to service tax.
The Bench observed that in the case of Associated Soapstone Distributing Co Pvt. Limited vs. CCE, the court held that there was only one contract assigning the scope of work as excavation and removal of overburden, waste, and mining ore, the same being a composite contract and it cannot be classified as site formation, clearance, excavation, earthmoving and demolition service and mining work separately.
The two-member bench comprising Ramesh Nair (Judicial) and C L Mahar (Technical) held that as per the nature of the service in the present case, the removal of overburden which was exclusively meant for mining of lignite shall fall under the category of mining service and quashed the service tax demand while allowing the appeal filed by the assessee.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The facts in brief are that the appellant is a joint venture firm engaged in providing Mining Service. The appellant is registered with service tax department under the category of Mining Service. The appellant had entered into a contract on 26.07.2003 with Gujarat Industries Power Company Limited (herein after referred to as ‘GIPCL’) for hiring equipment with operators, maintenance staff and facilities for excavation work. The contract was entered into on 08.11.2003 to be completed on 07.11.2005 however the contract was further extended from time to time. The scope of work under the above mentioned contract broadly covered the deployment of equipments with operators, maintenance staff and supervisor staff for earth work and lignite excavation. The contract specifically mentions that required quantity of over burdened earth to be removed and simultaneous extraction of required quantity of lignite to be undertaken. It has further been elaborated in the contract that for the purpose of mining lignite, the appellant is required to deploy heavy earth moving machines like diesel operated hydraulic excavators of not less than 3 Cubic Meter bucket capacity and dumpers ranging between 25 to 35 MT and other allied equipments like bulldozers, pressurized water sprinklers, motor graders, water tankers etc. with adequate capacity to be deployed for carrying out the work. It is matter of record that lignite which is to be mined is generally found at a certain depth from the top level of the soil. For the purpose of extraction of lignite, the assessee is supposed to remove the over burden of sand, murrum, various clay levels, etc. The department entertained a view that appellant are engaged in site formation and clearance of the mining area and the amount received by them after 01.04.2005 should have been subjected to service tax for which neither the appellant have taken registration nor have they paid the service tax. Accordingly, a show cause notice dated 22.10.2012 was issued to the appellant where under primarily following two charges have been made along with other provisions of demanding interest, imposition of penalty under the relevant sections of 76, 77 and 78 of the Finance Act, 1994:-
(i) Service Tax amounting to Rs 2.90.40.930/- received by them from M/s GIPCL should not be demanded and recovered from them for the financial year 2007-2008 to 2011-12 under the category of Mining service under the proviso of Section 73(1) read with Section 68 of the Finance Act, 1994 by invoking the extended period of five years as discussed hereinabove. The service tax amounting to Rs.2,90,40,930/-already paid by them through Cenvat credit should not be appropriated against the service tax liability.
(ii) The amount of Rs. 49,54,78,789/- received by them from M/s GIPCL for Site formation and Clearance, Excavation and Earth moving and Demolition service carried out by M/s Dholu KCL before introduction of Mining Service should not be considered as taxable value under Site formation and Clearance, Excavation and Earth moving and Demolition service and Service Tax amounting to Rs. 6,02,56,855/ not paid by them for the financial years 2007-2008 to 2011-12 under Site formation and Clearance, Excavation and Earth moving and Demolition Service should not be demanded and recovered from them under the proviso of Section 73(1) read with Section 68 of the Finance Act, 1994 by invoking the extended period of five years as discussed hereinabove.”
The matter has been adjudicated vide impugned order-in-original dated 05.12.2013 where under all the charges have been confirmed against the appellant
2. Learned advocate appearing on behalf of the appellant submits that mining service came under the service tax net with effect from 01.06.2007 and they have duly been discharging their service tax liability on the amount received for the mining work after the mining service has come into being. It has further been submitted that removal of overburden/ inter-burden material is an integral process and part of the excavation of lignite. It is not a case where for extraction of minerals, site formation activities are carried out separately at the ground area like removal of the over burden material and then extracting of the minerals. It has been emphasized that over burden material is available in the mining area at various levels of mining of lignite. Thus it has been emphasized that removal of over burden and inter burden is undertaken throughout the mining process which is in relation to mining of lignite. Learned advocate has contended that it wrong on the part of the department to assume that merely the over burden is removed from surface area first and thereafter the excavation of lignite is undertaken by the appellant. Learned advocate has taken us to various clauses of the contract to show that entire activity is primarily pertains to mining/ excavation of lignite from the mines.
3. The appellant has further submitted that there is single tender floated by M/s. GIPCL for excavation of lignite and overburden removal which was assigned to the appellant by a single Letter of Intent (LOI) to carry out both the activities as a composite activity. Since no separate contract has been awarded for site preparation and excavation, the activity which has been undertaken by the appellant is primarily of excavation and mining of lignite. The clearance of overburden is incidental or ancillary for undertaking the excavation work.
4. Learned advocate has cited the decision of this Tribunal in the case of M/s. Associated Soapstone Distributing Co Pvt. Limited vs. CCE reported at 2014 (34) STR 865 (Tri. Del.) wherein the Tribunal has held that there is only one contract of assigning the scope of work as excavation and removal of overburden, waste and mining ore, the same being a composite contract, it cannot be classified as site formation, clearance, excavation, earthmoving and demolition service and mining work separately. The learned advocate has also sited following decisions in his favour:-
(a) Associated Soap Stone Distributing Co. Pvt. Limited vs. CST – 2022 (63) GSTL 250 (Tri.)
(b) GS Atwal & Co. Engineering Pvt Limited vs. CST – 2023 (6) TMI 310-CESTAT
(c) Quippo Oil and Gas Infrastructure Limited vs. CST – 2020 (11) TMI 437-CESTAT
(d) Prahlad Rai & Company vs. CCE – 2018 (17) GSTL 272 (Tri-Del.)
(e) Sadbhav Engineering Limited vs. CST – 2016 (43) STR 288 (Tri-Ahmd.)
(f) Associated Soapstone Distributing Co. P. Limited vs. CCE – 2014 (34) STR 865 (Tri-Del.)
(g) CCE, Hyderabad vs. Vijay Leasing Company – 2011 (22) STR 553 (Tri-Bang.)
(h) Ramakrishna Reddy vs. CCE & C., Tirupathi – 2009 (13) STR 661 (Tri-Bang.)
(i) Aravali Construction Company Pvt. Limited vs. CCE – 2017 (6) GSTL 347 (Tri-Del.)
(j) Teknomin Construction Limited vs. CCE – 2017 (4) GSTL 65 (Tri-Del.)
5. Learned advocate has submitted that they have rightly discharged service tax under the category of Mining Service and on this ground alone the demand confirmed under the category of site formation is legally not sustainable. Learned advocate has also argued that the demand under the impugned show cause notice is barred by period of limitation as demand pertains to 01 July 2007 to 22 October 2012 and since there is no cause of invoking extended period of limitation as no element of suppression of facts, mis-represetation or fraud with intent to evade payment of duty are present in this case and therefore, the demand for the period 01 July 2007 to 20102011 is barred by limitation. It has also been argued that quantification of demand by the department is highly erroneous and amount of demand has not been explained properly neither in the show cause notice nor in the order-in-original therefore, same deserves to be dropped.
6. It has further been argued that it is a settled principle of law that if the dispute is out of interpretation of provisions of statute, no penalty can be levied even if it is held that service tax is payable. Learned advocate has heavily relied upon following decisions in this regard:-
(a) Bharat Wagon & Engg. Co. Limited vs. Commissioner of C. Ex., Patna, (146) ELT 118 (Tri.- Kolkata).
(b) Goenka Woollen Mills Limited vs. Commissioner of C. Ex., Shillong, 2001 (135) ELT 873 (Tri. Kolkata).
(c) Bhilwara Spinners Limited vs. Commissioner of Central Excise, Jaipur, 2001 (129) ELT 458 (Tri. – Del.).
7. We have heard Shri Prabhat K. Rameshwaram, Addl. Commissioner, learned ADR who has reiterated the findings given in the order-in-original.
8. We have heard both the sides. Before proceeding further in the matter it will be proper to first have a look at the provisions of relevant contract entered between the appellant and M/s. GIPCL dated 07.11.2003. For the sake of convenience, we reproduce the schedule (iv) of the contract below:-
On perusal of the above schedule, it can be seen that excavation and removal of overburden/ earth all sorts of soil at all depths and disposing the excavated material within the mines premises is major item of work which has been assigned by M/s. GIPCL to the appellant. In the work schedule it can clearly be seen that excavation and removal of overburden material is an integrated work which primarily pertains to the mining of lignite. We are of the opinion that primary work which is assigned to the appellant is mining of lignite and of course clearance of overburden of earth is ancillary work and is an integrated part of mining of lignite. We are therefore, of the opinion that primary nature of service provided by the appellant to the service recipient is of mining service which was included in the service tax net vide Finance Act, 2004 with effect from 01.06.2007 under the service category of Mining Service. We find that the appellant have duly discharged their service tax liability after 01.06.2007 under the service category of Mining Service. We therefore, find that the impugned order-in-original is without any merit.
9. Before parting with the matter, we would like to take shelter of this Tribunal decision in the case of Associated Soap Stone Distributing Co. Pvt. Limited vs. CST, Ahmedabad – 2022 (63) GSTL 250 (Tri. – Ahmd.), the relevant portion of the order is reproduced below:-
4. We have considered the submissions made by both the sides and perused the records. In the present case, the issue to be decided is that the service in question is classifiable under the category of ‘Site Formation and clearance, Excavation and Earth Moving and Demolition service’ as contended by the revenue or under the category of ‘Mining service’ as contended by the appellant. As per the facts of the case, the appellant have carried out the service in terms of contract under Tender No. LP-2/04-05 and similar other contract. As per the contract document, the relevant clauses thereof are reproduced below :-
7. Exploration & Interpretation
Commissionerate of Geology & Mining and GMDC have so far completed about 410 boreholes in this area. Out of those about 172 boreholes were in the mined out area and about 50 boreholes are in the block IV area were overburden removal work has to be carried. The exploration data of block I IV has further scrutinized by GMDC and the general sequence of formation is observed as below,
– Top soil
– Sub soil
– Limestone/Siderite
– shale and clay
– Lignite (with clay/shale intercalation)
– Sand white.
– Trap
The constitution of overburden can be derived follows;
1. Top soil & Sub – Sol 15%
2. Limestone – 7%
3. Shale/Clay – 45%
4. Carbonaceous – Clay/Shale 35%
1. METHOD OF WORKING
(i) The equipment deployed by the contractor and methods and organization for handling the work shall be such as will ensure a regular and continuous production of lignite of required quality, which will ensure the completion of the works within the time herein specified. Further, the work should be executed strictly in conformity with the provisions of CMR 1957, Mines Act, 1952 and all relevant rules, bye laws and statutory provisions and instruction given by the GMDC and/or Mines Manager from time to time.
(v) if any economic mineral other than lignite is found in overburden/interburden, the contractor shall excavate it separately and stack it in a separate dump to be earmarked by the GMDC for this purpose. No extra payments shall be made on this account.
1. SCOPE OF WORK
(a) Hiring of earth moving machinery like hydraulic excavators, dumpers and other ancillary equipment for removal of Overburden (OB)/Inter-burden (IB), which includes all types of strata like top soil, alluvium, different types of clay and shale etc., as given in bore hole lithologs enclosed in drawing section at plate no. 2 to 12, up to all depths from surface and with all leads and lift, so as to expose all minor and major lignite seams for mining.
(c) Sometimes during OB removal, intermediate thin lignite seams or other economical minerals may intercept, which may or may not be quality-wise suitable for sale. In such cases, lignite or other economical minerals so intercepted will also be excavated and stacked by the successful bidder (hereinafter called Contractor), at place(s) directed by the Mines Manager, at no extra payment.
(d) If such lignite seams are mined out departmentally or through any other authorised agency, proper records, duly signed by the Mines Manager and the Contractor, shall be maintained in terms of tonnage of lignite so removed. Pro rata volumetric quantity shall then be reduced from Contractor’s measured quantity for the plot. Specific gravity of lignite, for this purpose, shall be considered as 1.2
From the above clauses of the contract, the nature of the work is the removal of overburden in relation to mining of lignite therefore, the removal of overburden is exclusively in relation to mining of lignite only therefore, the activities carried out by the appellant i.e. Removal of overburden by excavation in relation to mining of lignite. It is further noticed that the service recipient M/s. GMDC also issued a certificate dated 163-2012 which is reproduced below :
From the above certificate issued by the Gujarat Minerals Development Corporation Ltd., who is the recipient of service in this case, makes it clear that the work of overburden/inter burden removal is a part of mining during the course of mining, therefore, the service is pre-dominantly related to mining. We find that even if, the contention of the revenue that the activities of the appellant taken independently is of ‘Site Formation and Clearance, Excavation and Earth Moving and Demolition but at the same time, all these activities undertaken by the appellant is for the purpose of mining only. In this position, we find that if at all, there is a doubt about the particular service to be classified under one or more category the principle laid down for classification of taxable service under Section 65A need to be applied. The same is reproduced below :-
Classification of taxable services. “SECTION 65A. For the purposes of this Chapter, classification of taxable – (1) services shall be determined according to the terms of the sub-clauses of clause (105) of section 65;
(2)When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows :
(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;
(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable;
(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration.”
From the above provision for classification of taxable service, it is provided that if taxable service is prima facie classified under two or more sub-clauses of clauses under Section 65, classification shall be effected on the basis of sub-clauses which provides the most specific description as compared to sub-clauses providing more general description. In the facts of the present case, it is undoubtedly clear that between appellant and the service recipient M/s. GMDC even though the nature of activity independently is of excavation and removal of soil but the objective of this activity is for mining only. In case of any mining activity, the activity of removal of overburden is inevitable. If the contention of the revenue is accepted then in case of all mining activities, the activity of excavation, removal of soil will go out of mining service which is not the intention of the legislature. Therefore, considering the above provision for classification of taxable service particularly in terms of sub-section (1)(2a) of Section 65A as per the nature of the service in the present case, the removal of overburden which is exclusively meant for mining of lignite shall fall under the category of mining service only. The same issue in the appellant’s own case came before the Tribunal Division Bench-Delhi which is reported at Associated Soapstone Distributing Co. P. Ltd. v. CCE – 2014 (34) S.T.R. 865 (Tri. – Del.) wherein, the Tribunal has passed the following order :-
After hearing both sides, we find that issue 5. involved is whether activity undertaken by the appellants falls under the Site Formation, Clearance and Excavation and Earthmoving and Demolition services as contended by Revenue or under Mining Service as contended by the appellants. For the sake of convenience, Section 65(97a), 65(105)(zzza) and Section 65(105)(zzzy) are reproduced below :-
“Section 65(97a)“Site formation and clearance, excavation and earth moving and demolition” includes –
(i) Drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or
(ii) Soil stabilization; or
(iii) Horizontal drilling for the passage of cables or drain pipes; or
(iv) Land reclamation work; or
(v) Contaminated top soil stripping work; or
(vi) Demolition and wrecking of building, structure or road,
But does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies”.
“Section 65(105)(zzza) – to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities”.
“Section 65(105)(zzzy) – to any person, by any other person in relation to mining of mineral, oil or gas;”
We note that activity undertaken by the appellants is excavation and removal of O/B waste and mining of ore. We also note that there is only one contract with the appellants showing the scope of work as excavation and removal of O/B waste and mining of ore. This activity starts from excavation and ends at mining of ore. We find that this is a composite activity and cannot be split into two separate parts for levy of service tax. We are supported in taking this view by the decision of Tribunal in case of M. Ramakrishna Reddy v. CCE reported in 2009 (13) S.T.R. 661 (Tri. – Bang.) wherein it was held that removal of overburden and excavation of ore is undertaken for mining of ores only and activity does not fall under Site Formation and Excavation and Earth moving and Demolition service. Following the said decision, we hold that since the activity undertaken by the appellants is also excavation and removal of overburden and mining of ore, it is not classifiable under Site Formation, Cleaning, Excavation, Earthmoving and Demolition services.
In the aforesaid circumstances, we set aside the order of the 6. Commissioner and allow the appeal. The Miscellaneous Application filed by the appellants also stands disposed of.
From the above judgment, it can be seen that in the appellant’s own case similar activities were considered as ‘Mining Service’ therefore, the ratio of the above judgment directly applies in the facts of the present case also. The identical issue has been considered in the various judgments cited by the appellant as mentioned in above Para 2.1 wherein, similar view was taken by the Tribunal therefore, we can conveniently view that the issue is no longer res integra. It is also pertinent to note that the appellant, on the same service, paid service tax under the category of ‘Mining Service’ with effect from 1-6-2007 and it is admitted fact that the revenue had accepted the classification of the same service under ‘Mining Service’. It also strengthens the case of the appellant that the service provided by them is of ‘Mining Service’ and does not fall under the category of ‘Site Formation and Clearance, Excavation and Earth Moving and Demolition Services’.
4.1. The appellant also argued that the service can alternatively be classified under supply of tangible goods for use as they have provided the machineries on hire for excavation. Since, we have taken the view that the service per se is a Mining Service therefore, we are not addressing the alternate submission made by the appellant.
5. As per the above discussions and findings, we are of the view that the appellant have provided the Mining Service which was not liable to service tax during the relevant period in this case. Therefore, the impugned order is not sustainable hence the same is set aside. Appeal is allowed with consequential relief.
10. In view of our above discussion and following the above cited decision of this Tribunal, we hold that order-in-original is without any merit and therefore, we set-aside the same.
11. Accordingly, the appeal is allowed.
(Pronounced in the open court on 03.11.2023)
