National Aluminium Company Limited Vs Commissioner of CGST & CX (CESTAT Kolkata)
Summary: The Customs, Excise and Service Tax Appellate Tribunal, Kolkata considered whether service tax was payable on mining royalty paid by the appellant to the Government of Odisha in April 2016 for bauxite ore extracted during March 2016.
The appellant had entered into an agreement with the Government of Odisha for extraction of Bauxite Ore from the Bauxite Mines at Damanjodi. Under the lease agreement, mining royalty and fees towards District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) were payable monthly based on the quantity of ore raised. The royalty and other charges relating to bauxite produced during March 2016 became payable and were paid in April 2016.
Mining royalty came within the purview of service tax with effect from 01.04.2016 by virtue of Notification No.22/2016-ST dated 13.04.2016, read with CBEC Circular No.192/02/2016 dated 13.06.2016. During investigation by the Directorate General of Goods & Service Tax Intelligence (DGGSTI), Bengaluru Zonal Unit, the appellant paid service tax and interest on mining royalty for April 2016 to September 2016.
A show cause notice dated 14.12.2017 was subsequently issued for service tax of Rs.12,24,13,844/- along with interest and an equal amount of penalty in respect of the royalty relating to March 2016, which had been paid in April 2016. The appellant contested the demand on the ground that the mining activity was undertaken in March 2016, when the relevant service tax levy was not in force.
The appellant submitted that, prior to 01.04.2016, except for specified services such as support services, services provided by the Government were covered under the negative list and were not subject to service tax. It also relied upon Notification No.18/2016-ST dated 01.03.2016, which amended serial no.6 of Notification No.30/2012-ST dated 20.06.2012 with effect from 01.04.2016. According to the appellant, allocation of natural resources did not constitute ‘support service’ under section 65B(49) of the Finance Act, 1994 and was therefore not taxable under reverse charge before 01.04.2016.
The department supported the impugned order and reiterated its findings.
CESTAT observed that the short issue was whether mining royalty paid in April 2016 for ore extracted in March 2016 was liable to service tax when the relevant service tax levy came into effect from 01.04.2016.
The Tribunal relied upon its decision in Principal Commissioner v. S.R. Traders [2023 (9) Centax 407 (Tri.- Del.), which had been affirmed by the Hon’ble Apex Court. In that decision, the Tribunal had held that where services relating to assignment of the right to use natural resources were received prior to 01.04.2016, the service tax provisions applicable before that date would govern the transaction and no tax implication could be fastened for such period.
Following the decision in S.R. Traders, CESTAT held that the appellant was not liable to pay service tax on royalty relating to bauxite ore mined in March 2016, even though the royalty payment was made in April 2016.
Accordingly, the Tribunal found no merit in the impugned order, set it aside and allowed the appeal with consequential relief, if any.
Facts of the Case
The appellant had an agreement with the Government of Odisha for extraction of Bauxite Ore from mines located at Damanjodi. Mining royalty, along with fees towards DMF and NMET, was paid monthly based on the quantity of ore raised during the relevant calendar month.
The royalty and other charges relating to bauxite produced during March 2016 were payable before the 25th day of the succeeding month and were consequently paid in April 2016.
According to the supplied order, service tax on mining royalty came within the service tax net with effect from 01.04.2016 through Notification No.22/2016-ST dated 13.04.2016.
Service Tax Demand and Investigation
The DGGSTI, Bengaluru Zonal Unit initiated investigation after gathering intelligence that the appellant had not paid service tax on royalty paid to the Government from April 2016 to September 2016 for assignment of the right to use natural resources.
During the investigation, the appellant paid the service tax liability on mining royalty for April 2016 to September 2016 and also paid interest.
Thereafter, show cause notice dated 14.12.2017 was issued for service tax of Rs.12,24,13,844/- together with interest and an equal amount of penalty in relation to the royalty pertaining to March 2016, for which payment was made in April 2016. The amount already paid was appropriated.
Appellant’s Submissions
The appellant submitted that Notification No.22/2016-ST dated 13.04.2016 brought mining royalty within the service tax net with effect from 01.04.2016. Its dispute was confined to royalty relating to mining activity undertaken in March 2016.
It was contended that the fact that royalty was paid in April 2016 could not alter the fact that the mining activity was undertaken in March 2016, before the relevant levy came into force.
The appellant further submitted that, prior to 01.04.2016, services provided by the Government were covered under the negative list except for specified categories, including support services. It relied upon Notification No.18/2016-ST dated 01.03.2016 amending serial no.6 of Notification No.30/2012-ST dated 20.06.2012 with effect from 01.04.2016.
According to the appellant, allocation of natural resources did not fall within ‘support service’ as defined under section 65B(49) of the Finance Act, 1994. It therefore contended that the service received in March 2016 was governed by the provisions applicable before 01.04.2016.
The appellant also submitted that grant of natural resources had not been excluded from the negative list prior to 01.04.2016 and relied upon the Tribunal’s decision in Principal Commissioner v. S.R. Traders [2023 (9) Centax 407 (Tri.- Del.), stated in the order to have been affirmed by the Hon’ble Apex Court as reported in 2023 (9) Centax 408 (SC).
Department’s Submissions
The Ld. AR for the department reiterated the findings contained in the impugned order.
CESTAT Kolkata’s Findings
The Tribunal identified the issue as whether royalty paid in April 2016 for bauxite ore extracted in March 2016 was liable to service tax when the relevant service tax levy became effective from 01.04.2016.
CESTAT relied upon its decision in S.R. Traders, in which it had held that where services relating to assignment of the right to use natural resources were received prior to 01.04.2016, the service tax provisions in force before that date would apply. The Tribunal had further observed in that decision that grant of natural resources was not excluded from the scope of the negative list prior to 01.04.2016.
The Tribunal noted that the S.R. Traders decision had been affirmed by the Hon’ble Apex Court. Following that decision, CESTAT held that the appellant was not liable to service tax on the royalty relating to the bauxite ore mined in March 2016 merely because the royalty was paid in April 2016.
Final Decision
CESTAT Kolkata found no merit in the impugned order and set it aside.
The appeal was allowed with consequential relief, if any. The operative part of the order was pronounced in the open Court.
Cases Discussed
- Principal Commissioner v. S.R. Traders [2023 (9) Centax 407 (Tri.- Del.)] — CESTAT Delhi.
- Principal Commissioner v. S.R. Traders [2023 (9) Centax 408 (SC)] — Hon’ble Apex Court affirmation as referred to in the supplied material.
FULL TEXT OF THE CESTAT KOLKATA ORDER
A demand of service tax has been confirmed against the appellant along with interest and penalty under section 78(1) of the Finance Act, 1994 was also imposed on the appellant on the amount of mining royalty paid by the appellant.
2. The facts of the case are that the appellant entered with an agreement with the Government of Odisha for extraction of Bauxite Ore from the Bauxite Mines located at Damanjodi. In terms of the lease agreement, the appellant used to pay mining royalty and fees towards District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) to the Government of Odisha on monthly basis in respect of quantum of ore raised during a calendar month. The royalty and other said charges are computed on the basis of clearance/dispatch of bauxite made during a month and payable by them before 25th day of the succeeding month. Accordingly, the royalty and other charges in respect of the quantity of bauxite produced during the month of March 2016 are payable and paid by the appellant during the month of April, 2016. The royalty paid to the Government on mining of Bauxite Ore came under the purview of service tax w.e.f. 01.04.2016 by virtue of Notification No.22/2016-ST dated 13.04.2016. Therefore, the service tax was leviable on the amount of mining royalty, under the category of allocation of natural resources by Government, in terms of the aforesaid Notification read with CBEC Circular No.192/02/2016 dated 13.06.2016.
3. An intelligence was gathered that the appellant has not paid service tax on the amount of consideration in the form of Royalty paid to the Government from April 2016 to September 2016, for the assignment of right to use natural resources, the Directorate General of Goods & Service Tax Intelligence (DGGSTI), Bengaluru Zonal Unit initiated investigation proceedings against the appellant. During the course of investigation by the DGGSTI, the appellant discharged its service tax liability on the mining royalty paid to the Government of Odisha in respect of the period April, 2016 to September, 2016. In addition to the payment of service tax, interest was also paid by the appellant. Subsequently to discharge of Service Tax liability, a show cause notice dated 14.12.2017 was issued to the appellant for the entire amount of service tax of Rs.12,24,13,844/- along with interest and equal amount of penalty for the period of March 2016, for which the payment was made in April, 2016. The appellant contested the charge stating that as the levy of service tax came into effect w.e.f. 01.04.2016, therefore, no demand can be raised for the mining royalty paid for the month of March 2016, although paid in April 2016, but the matter was adjudicated and the demand of service tax was confirmed along with interest and penalties are also imposed. The amount already paid was appropriated. Aggrieved from the said order, the appellant is before us.
4. The Ld.Counsel appearing on behalf of the appellant submits that the mining royalty came into service tax net in terms of Notification No.22/2016-ST dated 13.04.2016 w.e.f. 01.04.2016. The appellant is contesting the payment of service tax for the mining activity undertaken by the appellant in the month of March 2016 only. It is his contention that although payment was made in the month of April, 2016, but mining was done by the appellant in the month of March 2016 when the said Notification was not in force. Therefore, the appellant is not liable to pay service tax.
5. It is his contention that prior to 01.04.2016, barring a few exceptions such as support services, all services provided by the Government were covered under the negative list and accordingly, not subjected to service tax. It is his submission that in terms of Notification No.18/2016-ST dated 01.03.2016 issued by the CBIC amending serial no.6 of the Notification No.30/2012-ST dated 20.06.2012 to the effect that any service provided by the Government would be chargeable to service tax under reverse charge w.e.f. 01.04.2016, therefore, prior to such date, the provisions relating to reverse charge pertained to “services provided or agreed to be provided by Government or local authority by way of support services excluding …………..”, therefore, till 31.03.2016, only in case of support service provided by the Government, the recipient of the service was liable to pay service tax under reverse charge. The impugned service of allocation of natural resources, does not fall under ‘support service’ as defined under section 65B(49) of the Finance Act, and was therefore not liable under reverse charge mechanism. It is his submission that appellant received services in relation to assignment of right to use natural resources from the State Government of Odisha in the month of March 2016, therefore, provision of service tax as were in force prior to 01.04.2016, would be applicable. It is further submitted that grant of natural resources was not excluded from the scope of negative list prior to 01.04.2016, therefore, no service tax implication can be fastened on the appellant. He also relied on the decision of this Tribunal in the case of Principal Commissioner v. S.R. Traders [2023 (9) Centax 407 (Tri.- Del.), which was affirmed by the Hon’ble Apex Court as reported in 2023 (9) Centax 408 (SC). Therefore, he prayed that the impugned order be set aside.
6. On the other hand, the Ld.AR for the department reiterated the findings of the impugned order.
7. We find that short issue before us is that whether the mining royalty paid by the appellant for mining to Government of Odisha in the month of April 2016 for the quantity of Ore extracted in the month of March 2016 is liable to pay service tax which came into service tax net w.e.f. 01.04.2016 or not?
8. We find that the said issue has been examined by this Tribunal in the case of S.R. Traders (supra), wherein this Tribunal has observed as under:-
“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 2-1-2016 and, therefore, the provisions of service tax, as were in force prior to 1-4-2016, would be applicable. Grant of natural resources was not excluded from the scope of negative list prior to 1-4-2016 and so no tax implication can be fastened on the appellant for such period.”
(emphasis supplied)
9. The said order has been affirmed by the Hon’ble Apex Court, in that circumstances, following the decision of this Tribunal in the case of S.R. Traders (supra), we hold that the appellant are not liable to pay service tax on the royalty paid for mining of Bauxite Ore in the month of March 2016, although the payment of royalty was made in the month of April 2016.
10. In that view, we do not find any merits in the impugned order and the same is set aside.
11. In the result, the appeal is allowed with consequential relief, if any.
(Operative part of the order was pronounced in the open Court.)
