Northern Coalfields Limited Vs Commissioner of Central GST (CESTAT Delhi)
Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, dismissed five appeals filed by Northern Coalfields Limited against the confirmation of service tax demands under the reverse charge mechanism on payments made to the Madhya Pradesh Government. The dispute concerned payments under the Madhya Pradesh Gramin Avsanrachna Tatha Sadak Vikash Adhiniyam, 2005, and Forest Transit Fee deposited under the Madhya Pradesh Transit (Forest Produced) Rules, 2000, during April 2016 to June 2017. The central question was whether these payments constituted taxes, which were not subject to service tax, or fees paid for services rendered by the State Government. The assessee maintained that both levies were taxes and relied on an earlier CESTAT decision in South Eastern Coal Fields versus CCE & ST, Raipur, dated 06.02.2026, which had treated the payments as taxes rather than fees. The Revenue relied on the Madhya Pradesh High Court judgment in South Eastern Coal Ltd. versus Commissioner of CGST & CE, reported as 2026 (5) TMI 1016, which treated the levies as consideration for services.
Following the Madhya Pradesh High Court judgment, the Tribunal held that both payments were fees for services rather than taxes and were consequently liable to service tax under the reverse charge mechanism. The Tribunal further observed that payment of service tax under reverse charge would ordinarily entitle Northern Coalfields Limited to corresponding CENVAT credit. Consequently, no mala fide intention could be attributed to the assessee, and the demands were confined to the normal period of limitation. Since the GST regime had replaced the CENVAT Credit Rules, the Tribunal held that any amount accruing as admissible CENVAT credit would have to be refunded in cash under Section 142 of the CGST Act. Northern Coalfields Limited was therefore required to pay the service tax under reverse charge and could thereafter claim the corresponding cash refund of eligible CENVAT credit. All five appeals were dismissed, and the impugned orders were upheld.
Cases Discussed
- South Eastern Coal Ltd. versus Commissioner of CGST & CE (Madhya Pradesh High Court) – 2026 (5) TMI 1016 – M.P. The Revenue relied on this judgment to contend that the disputed State Government payments were fees for services rather than taxes. The Tribunal followed the High Court ruling and upheld the reverse charge service tax liability.
- South Eastern Coal Fields versus CCE & ST, Raipur (CESTAT Delhi) – Final Order Nos. 50227-50256 of 2026, dated 06.02.2026. The assessee relied on this earlier Tribunal decision, which treated the disputed payments as taxes rather than fees and held that service tax was not chargeable under reverse charge. The present Tribunal followed the Madhya Pradesh High Court judgment instead.
FULL TEXT OF THE ORDER OF CESTAT NEW DELHI
The undisputed facts of this case are that M/s Northern Coalfields Limited1 is the subsidiary of Coal India Limited and has its headquarters in Singrauli, M.P. and it mines and sells coal on which it paid central excise duty. It also avails Cenvat credit on the input and input services including the service tax paid on under reverse charge mechanism.
2. The undisputed legal position is that no service tax can be levied on the taxes paid to the State Governments but service tax has to be paid on the fee charged by the State Government in lieu of services.
3. The short point of dispute is whether the appellant was required to pay service tax under reverse charge on the amounts paid to the Madhya Pradesh State Government under:-
(a) Madhya Pradesh Gramin Avsanrachna Tatha Sadak Vikash Adhiniyam, 20052
(b) Forest Transit Fee deposited under Madhya Pradesh Transit (Forest Produced) Rules, 2000 during the period April 2016 to June 2017.
4. The case of the Revenue is that these two payments were in the nature of fees paid to the State Government for the services rendered and, therefore, the appellant was required to pay service tax on them under reverse charge mechanism. The case of the appellant, on the other hand, is that no service tax is payable as these payments are in the nature of taxes and they are not fees.
5. Learned counsel for the appellant placed reliance on the decision of this bench in the Final Order No. 50227-50256 of 2026 dated 06.02.2026 in South Eastern Coal Fields versus CCE & ST, Raipur (Final Order in which one of us – Shri P.V. Subba Rao was a Member). It was decided in the Final Order that both these payments were in a sense taxes and not fees and, therefore, no service tax can be charged under reverse charge on these payments.
6. Learned Authorized Representative for the Revenue, on the other hand placed reliance on the decision of the Hon’ble Madhya Pradesh High Court in South Eastern Coal Ltd. versus Commissioner of CGST & CE3 in which it was held that these payments were in the nature of fees and not taxes. Paragraph 20 of this judgment is reproduced below :-
“20. The State Government enacted the Madhya Pradesh Gramin Avsanrachna Tatha Sadak Vikas Niyam, 2005, to provide for additional resources for the development of infrastructure and roads in rural areas with special emphasis on backward and mining areas of the State. Under the said Adhiniyam, Section 3 provides for “Levy of Tax”, Section 4 deals with “Payment and Recovery of tax” and Section 8 deals with “Utilisation of Tax Proceeds”. By enacting this legislation, the State Government has acted within its legislative competence to raise additional financial resources. The levy imposed under the Act is in the nature of a tax intended to create a fund for development of rural infrastructure and roads in rural and mining areas within the State of M.P. It can be understood as a tax linked to land bearing minerals, as the burden of the levy is associated with such land. Section 2 (i) of the Madhya Pradesh Gramin Avsanrachna Tatha Sadak Vikas Niyam, 2005 (for short “Niyam, 2005”) defines “Mining Area” means area in a district where mineral exploitation is being carried out and as per definition provided in Section 2 (j) of the Niyam, 2005, “Rural Area” means any area other than the area comprised within the territorial area of a Municipality or a Nagar Panchayat or a Municipal Corporation. Section 2 (g) thereof defines the tax, according to which the rural infrastructure and road development tax is levied under Section 3, and as per Section 3, of the MPGATSVA there shall be levied and collected a rural infrastructure and road development tax on all mineral bearing land. Section 8 of the MPGATSVA provides utilization of the tax proceeds, according to which the proceeds of tax shall be utilized by the State Government for improvement and development of infrastructure and roads in rural areas, backward areas, and mining areas. Rule 16 of Niyam, 2005 provides the “Constitution of the Rural Infrastructure Development Tax Fund” for the purpose of uitlisation of the fund and as per Rule 17, the fund shall be utilized for implementation of Rural Infrastructure and Road Development programmes in the rural areas, backward areas and mining areas of the State. Therefore, the respondent – Authority has rightly observed that the petitioners being mining holders, would be beneficiaries of this development. Hence, it is a “Service” provided to them for which this tax is being collected. Therefore, such an opinion has not been formed contrary to the judgment passed in the case of M/s Neogy and Sons (Supra)”.
7. Respectfully following the judgment of the Madhya Pradesh High Court, we hold that both these payments were in the nature of fees for services and not taxes and, accordingly, service tax has to be paid under reverse charge mechanism on the fees so paid. We find that since the demand of service tax is under reverse charge, which entitles the appellant to pay service tax with one hand and take Cenvat credit with the other, no malafide can be attributed to the appellant. The demands herein are only for the normal period of limitation.
8. We find that since the CGST has came into force and the Cenvat Credit Rules would no longer apply. As per section 142 of the CGST Act, any amount which would accrue to the appellant as Cenvat credit will have to be refunded in cash. In short, the appellant has to pay service tax under reverse charge mechanism for the normal period of limitation and then it may claim refund of the amount which would accrue to it as Cenvat credit under section 142 of the CGST Act.
9. All appeals, therefore, dismissed and the impugned orders are upheld.
(Order pronounced in open court on 05/10/2026.)
Notes:
1 the appellant
2 MPGATSVA
3 2026 (5) TMI 1016 – M.P.
