Custom, Excise & Service Tax Tribunal
M/S. Hazaribagh Mining & Engineers ... vs Commissioner Of Central Excise, ... on 9 August, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, KOLKATA
EASTERN ZONAL BENCH: KOLKATA
Appeal No. ST/10/12
(Arising out of Order-in-Original No.Commr/B-1/ST-12/2011 dated 10.10.2011 passed by the Commissioner of Central Excise, Customs & Service Tax, Bhubaneswar-I.)
FOR APPROVAL AND SIGNATURE
HONBLE SHRI H.K.THAKUR, MEMBER(TECHNICAL)
HONBLE SHRI P.K.CHOUDHARY, MEMBER(JUDICIAL)
1. Whether Press Reporters may be allowed to see
the Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the
CESTAT(Procedure) Rules, 1982 for publication in any
Authorative report or not?
3. Whether Their Lordship wishes to see the fair copy
of the Order?
4. Whether Order is to be circulated to the Departmental
Authorities?
M/s. Hazaribagh Mining & Engineers Pvt.Ltd.
Applicant (s)/Appellant (s)
Vs.
Commissioner of Central Excise, Customs & Service Tax, BBSR-I
Respondent (s)
Appearance:
Dr.Samir Chakraborty, Sr.Advocate for the Appellant(s) Shri K.Chaudhary, Supdt.(AR) for the Revenue CORAM:
Honble Shri H.K.Thakur, Member(Technical) Honble Shri P.K.Choudhary, Member(Judicial) Date of Hearing :- 09.08.2016 Date of Decision :- 15.09.2016 ORDER NO.FO/A/76018/2016 Per Shri H.K.Thakur.
This Appeal has been filed by the Appellant against Order-in-Original No.Commr/B-1/ST-12/2011 dated 10.10.2011 passed by the Commissioner of Central Excise, Customs & Service Tax, Bhubaneswar-I as Adjudicating authority. Under this Order-in-Original dated 10.10.2011 Adjudicating authority has, inter alia, confirmed a Service Tax demand of Rs.51,60,777/- (Rupees Fifty One Lakhs Sixty Thousand Seven Hundred and Seventy Seven only) against the Appellant under Section 73(2), along with interest under Section 75 of the Finance Act, 1994. An equivalent amount of penalty has also been imposed upon the appellant that extended period is applicable. This appeal is being listed as per Orissa High Courts Order dated 02.12.2015 in OTAPL 13 of 2014.
2. Dr.Samir Chakraborty (Senior Advocate) appeared on behalf of the appellant. Learned Senior Advocate during the course of hearing as well as through written submissions argued the appellant is providing Mining Services to Tata Steels Mines Division, Khondbond Iron Mine for which a composite charge of Rs.72/- per CuM is agreed upon as per the contract entered with the service recipient. That as per the scope of contract appellant is required to undertake the following activities in the mines of the service recipient and only blasting of mines is done by the service recipient :-
(i) Site preparation
(ii) Dozing
(iii) Making holes
(iv) Excavating
(v) Loading
(vi) Transporting and dumping blasted rejects comprising of Laterite, Laterised Hard Ore etc. to dump yard as per the mine excavation plan prepared by Tata Steel.
(vii) Handling of waste materials and mixed ore/hard ore.
2.1 Learned Sr.Advocate made the Bench go through para 1.0 & 2 of the contract entered with Tata Steel. It was argued that in the scope of the work under Handling of Mixed Ore/Hard Ore it is specifically agreed than any Mixed Ore/Hard Ore arisen during excavation will be made free from contamination (Laterite Soil/waste and other inferior material) by the appellant at the face using appellants own machineries and the quality of such ore will be classified by company before transporting the same to the stockyard near Departmental crusher by appellant using his own means. He also made the Bench go through para 4 of the main contract and clause-8 of Annexure-3 to the contract to argue that contract is not only for site preparation and removal of over burden but extraction of ore also. That so separate charge is made by the appellant for each of the activities carried out as stated in para 2 above. That in the absence of separate billing for each activity no Service Tax can be quantified and demanded as site preparation, cargo handling services etc. That in the case of a composite contract Service Tax on the activities undertaken by the appellant could be charged only under the heading Mining Services w.e.f. 18.06.2007 when Mining Service was brought into the Statute book. It was also the case of the learned Advocate that a composite contract is not divisible and no Service Tax on individual activities can be demanded from the appellant prior to 18.06.2007 and that appellant has started paying duty, on their activities as Mining Services after 18.6.2007. Learned Sr.Advocate relied upon, inter alia, the following case laws in support of his various arguments:-
(i) Associated Soapstone Distributing Co.P.Ltd. vs. CCE, Jaipur-II [2014 (34) STR 865 (Tri.-Del.)]
(ii) CCE, Hyderabad vs. Vijay Leasing Company [2011 (22) STR 553 (Tri.-Bang.)]
(iii) M.Ramakrishna Reddy vs. CCE & C, Tirupathi [2009 (13) STR 661(Tri.-Bang.)]
(iv) Orissa Stevedors Ltd. vs. CCE, C & ST, BBSR-I [2015 (38) STR 964(Tri.-Kolkata)
(v) CCE & Cus, Kerala vs. Larsen & Toubro Ltd.
[2015 (39) STR 913 (SC)] 2.2 It is also the case of the appellant that CBEC Circulars 232/2/2006 Ex.4 dated 12.11.2007 and 334/1/2007-TRU dated 28.02.2007 are not applicable to the present facts as those Circulars do not deal with composite contracts which have been appropriately clarified as per para (iv) of CBEC Circular No.123/5/2010-TRU dated 24.05.2010.
2.3 Learned Sr.Advocate further argued that as per Wikipedia encyclopedia Soft-rock or underground mining is a technique to extract, inter alia, minerals and geological materials from Sedimentary (Soft) rocks as defined below:-
Underground mining (soft rock) refers to a group of underground mining techniques used to extract coal, oil shale, potash and other minerals or geological materials from sedimentary (soft) rocks. Because deposits in sedimentary rocks are commonly layered and relatively less hard, the mining methods used differ from those used to mind deposits in igneous or metamorphic rocks (see Underground mining (hard rock)). Underground mining techniques also differ greatl from those of surface mining. 2.4 That following has been described in Wiley Online Library about Iron ore in Joda and Khondbond Areas in Orissa:-
Precambrian iron ores of the Singhbhum-North Orissa region occur in eastern India as part of the Iron Ore Group (IOG) within the broad horse-shoe shaped synclinorium. More than 50% of Indian iron ore reserves occur in this region. Massive-hard, flaky-friable, blue dust and lateritic varieties of iron ores are the major ore types, associated with banded hernatite, jasper and shales. These ores could have formed as a result of supergene enrichment through gradual but extensive removal of silica, alumina and phosphorus from banded iron formations and ferruginous shale. Attempts for optimal utilization of these resources led to various ore characterization studies using chemical analysis, ore and mineral petrography, XRD analysis, SEM and electron probe micro analysis (EPMA). The ore chemistry indicates that the massive hard ores and blue dust have high iron, low alumina and phosphorus contents. Because of high quality, these ores do not require any specialized beneficiation technique for up-gradation. However, flaky-friable, lateritised and goethitic ores are low in iron, high in alumina and phosphorus contents, requiring specific beneficiation techniques for up-gradation in quality. XRD, SEM and Ore microscopic studies of massive hard ores indicate the presence of hematite and goethite, while flaky and lateritiec ores show a higher concentration of goethite, kaolinite, gibbsite and hematite. EPMA studies show the presence of adsorbed phosphorous as fine dust in the hard ores. Sink and float studies reveal that most of the gangue minerals are not completely liberated in the case of goethitic and lateritic ores, even at final fractions. 2.4.1 It is thus the case of the appellant that words like laterised Hard ore, Flaky/Friable and Mixed ore used in the contract mean ore required to be excavated and transported into designated dumpyard.
2.5 That demand is time barred as the issue is one of interpretation of classification of services and extended period and penalty cannot be invoked. Appellant relied upon the following case laws:-
(i) Jaiprakash Industries Ltd. vs. Commissioner of Central Excise [2002 (146) ELT 481 (SC)]
(ii) Continental Foundation Jt. Venture vs. Commissioner of Central Excise, [2007 (216) ELT 177 (SC)]
(iii) Commissioner of Central Excise vs. Afcons Pauling Joint Venture [2009 (242) ELT 352 (P & H)
(iv) Mentha and Allied Products Ltd. v. Commissioner of Central Excise [2004 (167) ELT 494 (SC)]
3. Shri K.Choudhary, Supdt.(AR) appearing on behalf of the Revenue argued that as per the contract entered between the appellant and Tata Steel the scope of work was only to prepare site and any ore which got extracted was an activity incidental to the site preparation. That as per the terms of the contract only mixed ore/hard ore were required to be segregated which arose along with the overburden. That the activity of the appellant even after 18.06.2007 will also be chargeable to Service Tax as Site Preparation and that is why demand for the entire period 15.06.2005 to 31.03.2008 has been confirmed by the adjudicating authority. That in the light of the CBEC Circular No.354/141-2010-TRU dated 24.08.2010 activities of the appellant was liable to Service Tax under Site Preparation and Cargo Handling Services prior to 18.06.2007. Learned AR relied upon CBEC Circular No.232/2/2006-CX.4 dated 12.01.2007 to argue that demand has been correctly confirmed by holding the activities rendered by the appellant as site formation services. That the case laws relied upon by the Appellant are not applicable as per para 5.23 of the Order-in-Original dated 10.10.2011. Learned AR relied upon the case law of Instrumentation Ltd. [2011 (23) STR 2211 (Tri.-Delhi) as discussed by Adjudicating authority in para 5.21 of Order-in-Original dated 10.10.2011 in support of his arguments.
4. Heard both sides and perused the case records. The issue involved in this appeal is whether the activities undertaken by the appellant for service recipient Tata Steels, amounts to providing of Mining Services and whether the same could be taxed as Site Preparation Services and Cargo Handling Services etc. before 18.06.2007, the date when Mining Service was specifically brought under the Service Tax net. It is the case of the appellant that the activities undertaken by them is under a composite contract which collectively constitute providing of Mining Services w.e.f. 18.06.2007 and from that date appellant has already started paying Service Tax. It is also their case that for the period prior to 18.06.2007 no Service Tax was required to be paid as appellant did not provide Site Preparation Service or Cargo Handling Service to Tata Steels. Revenue on the other hand is of the view that activities of the appellant were liable to Service Tax under Site Preparation/Cargo Handling Services even if Mining Services were specifically brought into Service Tax net w.e.f. 18.06.2007.
4.1 Relevant clauses of the contract entered between the appellant and Tata Steel are as follows:-
INTRODUCTION Khondbond Iron Mine is a highly mechanized mine of Tata Steel, operating at about 18 KM from Joda, in the state of Orissa. The Steel Company is looking for interested parties for hiring related equipments for excavation.
The scope of the contract will be from site preparation, making holes for blasting, excavation of rejects comprising of Laterite. Linerised Hard Ore, BHJ/BHQ, Shale, Flaky/Frable and incidental Hard Ore and transportation of the same to the designated dump yards.
1.0 GENERAL The Tata Iron & Steel Company Ltd., hereafter to referred as the steel Company and the party interested to perform this Work, referred hereafter as party.
a) The scope of the contract will be from site preparation, making holes for blasting, excavation of rejects and incidental ore transportation to the designated dump.
2. SCOPE OF THE WORK As petitioner referrer herein the party is required to do the following jobs.
a) The party is require to deploy suitable machinery & equivalent for site preparation, dozing, making holes, excavating, lkoading, transporting and dumping blasted rejects comprising of laterite, Laterised Hard Ore, Mixed Ore BHJ/BHQ, Shale, Flaky/Fraible, incidental Hard Ore to the dump Yard as per the mine excavation plan, prepared by Tata Steel. The operations will be done in consultation with the Representative of the Steel Company.
b) The average lead distance from worksite to dump Yard shall be 1.5 KM.
c) The sequence of operation will normally be co make 100mm dia. Holes as per guidance of the companys representative, loading of blasted material, transportation of the same to different dump Yard. Except blasting all the other activities as mentioned above will be done by the party using his own machinery.
Blasting will be done by the Steel Company.
Handing of different material:
Handling of Waste Material: The waste material (laterite/Soil/flaky ore/Friable ore/BHJ/BHQ) will be dumped at separate places/dump yard as per the instruction of company representative.
Handling of Mixed Ore/ Hard Ore: Any Mixed Ore/Hard Ore encountered during the course of excavation will be made free from contamination (Laterite/Soil/Waste and other inferior material) by the party at the face using his own machineries. The Quality of the above ore will be certified by companys representative for freeness of contamination before tansporting the same to the Stock Yard near Departmental crusher by the party using his own means.
4. Total Quantity to be Excavated : 13,00,000 ..Cu M(+/-5%)(65,000)
a) YEAR 1st 2nd 3rd QTY.(CuM) CuM/MONTH 5,20,000 44,000 5,20,000 44,000 2,60,000 22,000
b) Approx. percentage of different types of material to be removed are as follows:
TYPE OF MATERIAL HARD ROCK (HARD ORE, LHO, BHJ) SOFT ROCK (FRIABLE ORE, SOFT ORE & Others) APPROX % age 25% 75% 4.2 The agreed composite rate as per this contract is @ 75/- per CuM between both the contracting parties for all the activities done by the appellant for Tata Steels and no separate breakup is available either in the contract or the bills raised.
5. It is observed from the above clauses of the contract that appellant has to do site preparation, making holes for blasting, excavation of rejects; comprising of laterite, laterised Hard ore, Shale, Flaky Friable and incidental Hard Ore; and transportation of the same to the designated dump yard. Under the heading Scope of the work while handling of Mixed ore/Hard ore, encountered during the course of excavation, appellant is required to make free the ore from contamination, like laterite/soil/waste and other inferior materials. The quality of ore so produced by the appellant is required to be certified by companys representative before the same is transported to the stockyard for crushing. From these clauses of the contract appellant is required to handle both the waste material (overburden) and the ore excavated during blasting. Clause 2(f) of this contract also talks of transporting Hard Sponge Ore boulders to the crusher. Clause-4 of this contract also convey that 75% of the materials to be removed will constitute soft rock consisting of Flaky/Friable ore, Soft Ore etc. It is also observed from the Scientific literature relied upon by the appellant that laterised Hard ore, Flaky/Friable mixed ore and soft ore excavated and transported by the appellant are treated as categories of ore and not simply as overburden removal. Clause 8 of Annexure-3 regarding Additional Terms & Conditions to the contract convey that all material/ore arising, occurring, excavated, lying in stock etc. shall always be the property of the company (Tata Steel). In view of the above facts on record it cannot be said that appellant is mainly undertaking site preparation and no activity relating to Ore Mining is done. In the absence of break up of charges recovered for each activity it can also not be said that site preparation is the essential character of the composite service rendered by the appellant. CBEC Circular F.No.232/2/2006-CX-4 dated 12.11.2007 does not prescribe that composite services should also be taxed individually even if no separate consideration for each activity is available/contracted. Rather para 6 of this Circular convey that these are general guidelines for settlement of pending disputes and should be applied to individual cases keeping in view the facts and circumstances of each case. Para 4 of this Circular is categorical that no Service Tax on mining activities/operations is leviable before 01.06.2007. Further CBEC vide Circular No.123/5/2010-TRU dated 24.05.2010; while deciding the aspect of site formation and clearance, excavation earthmoving and demolition services and laying of cable under the roads and similar activities; clarified as follows:-
(iv) Site formation and clearances, excavation, earthmoving and demolition services are attracted only if the service providers provide these services independently and not as part of a complete work such as laying of cables under the road. 5.1 In the present proceedings before us also contract is not for site formation alone but also include a host of other activities including extraction/segregation of ore as per service recipients standards. Appellant relied upon the case law of Associated Soapstone Distributing Co.P.Ltd. vs. CCE, Jaipur-II (supra) where facts involved and issue were also similar. Rather in that case amounts were also received by the service provider separately from the service recipient as per submissions made by DR in para-4 of that case law. The observations made by CESTAT Delhi in the above case law were as follows:-
4.?Shri Sanjay Jain, ld. Departmental Representative appearing for Revenue submits that the appellants are receiving payment as per contract separately for activity of site formation, excavation and clearance and therefore, it is not a composite contract and the Commissioner has rightly demanded the service tax on this activity under Section 65(97a) of the Act. He submits that the decision cited by the appellants is distinguishable for the facts of the present case as amounts are separately shown for excavation and mining activity.
5.?After hearing both sides, we find that issue 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 over burden 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 over burden and mining of ore, it is not classifiable under Site Formation, Cleaning, Excavation, Earthmoving and Demolition services.
6.?In the aforesaid circumstances, we set aside the order of the Commissioner and allow the appeal. The Miscellaneous Application filed by the appellants also stands disposed of.
5.2 Similar views were expressed by CESTAT Bangalore under CCE, Hyderabad v. Vijay Leasing Company (supra). Both the case laws of Associated Soapstone Distributing Co.P.Ltd. v. CCE, Jaipur-II(supra) and CCE, Hyderabad vs. Vijay Leasing Company (supra) have relied upon the case law of Mr.Ramakrishna Reddy vs. CCE & Cus, Tirupathy (supra) where following was held by CESTAT Bangalore in paras 10.1 & 10.2 :-
10.1?From the above, it is very clear that the salient feature of the services rendered by the appellant is mining. In other words, the appellant is expected not only to remove the overburden but also to excavate the Barytes Ore. We cannot say that the appellant is not undertaking site formation work, but site formation work undertaken by the appellant is incidental to the mining activity. To put it in different words, the essential character of the work undertaken by the appellant is mining or winning of minerals. The mining services became taxable only with effect from 1-6-2007. The period in the present case is prior to 1-6-2007. It cannot be said that the entire service rendered by the appellant comes under the category of site formation. If that were so, one cannot say that it also falls under Mining Services. In any case, Section 65A (2) of Chapter V of the Finance Act, 1994 reads as follows :
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.
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. 5.3 Reliance placed by the Adjudicating authority on CESTAT Delhi Bench case law of Instrumentation Ltd. [2011 (23) STR 2211 (Tri.Delhi.)] is not of much help in view of the above case laws available on the specific issue involved in this appeal.
6. Honble Apex Court in the case of Commissioner of C.Ex. & Cus., Kerala vs. Larsen & Toubro Ltd. (supra), while deliberating on the issue of indivisibility of Work Contract, distinguished between Contracts Simplicitor and Composite Works Contracts in para-24 of this case law as follows:-
24.?A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines taxable service as any service provided. All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract. 6.1 In view of the above ratio laid down by Apex Court Service Tax as Site formation Service could be levied if there is a Service Contract Simplicator to that effect. However, once the contract is a composite contract for the entire activities from Site formation to segregation of Ores then the same has to be charged as a separate service (Mining Services), which was made chargeable to Service Tax w.e.f. 18.06.2007 only. Such operations under a composite contract cannot be treated as Site formation or Cargo Handling Service before 18.06.2007.
7. In view of the above observations and settled proposition of law appeal filed by the appellant is allowed by setting aside the Order-in-Original dated 10.10.2011 passed by the Adjudicating authority, holding that activities undertaken by the appellant under a composite contract will amount to providing Mining Services which were made chargeable to Service Tax only with effect from 18.06.2002. We have not gone into the time bar aspect of the demand as on merits the appeal has been allowed in favour of the appellant.
(Pronounced in the open court on 15.09.2016.) SD/ SD/ (P.K.CHOUDHARY) (H.K.THAKUR) MEMBER(JUDICIAL) MEMBER(TECHNICAL) sm 16 Appeal No.ST-10/12