Classification of services of excavation/drilling and removal of overburden as Mining services or Site Formation services.

PJ/Case Law/2013-14/1997

Case:-ARVIND KUMAR & CO. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II

Citation:-2013(31) S.T.R. 567 (Tri.-Del.)

Brief Facts:-The appellants in both the cases during the period from 2002-2003 to March, 2006 were providing the following services to Rajasthan State Mines and Minerals Ltd. -
a)    removal of overburden, excavation of gypsum, loading of gypsum in trucks/tippers or any other means of transportation;
b)    refilling of worked out area by overburden and loosening of earth pockets in the worked out area and its proper levelling after excavation of gypsum;
c)    construction of ramps and/or access roads to working faces using excavator to facilitate movement of trucks/tippers and its maintenance including water sprinkling;
d)    recovery of left out boulders of gypsum (ROM from the left out area and loading into trucks);
e)    providing and maintenance of mine approach/access road including cleaning of soil and sand on the road.
The department was of the view that during the period prior to 16-6-2005 these activities were taxable as cargo handling service and from 16-6-2005 these activities were taxable as "site formation and clearance excavation and earth moving and demolition services". The original Adjudicating Authority on this basis confirmed Service Tax demand of Rs. 11,73,036/- against M/s. Arvind Kumar & Company and Service Tax demand of Rs. 23,43,881/- against M/s. Rohani Sharmik Theka Sahakari Samiti Ltd.Besides the Service Tax demand, interest on the Service Tax was also demanded under Section 75 of the Finance Act, 1994 and penalties were imposed under Sections 76 and 77 ibid. On appeals being filed against the orders of the original Adjudicating Authority, the Commissioner (Appeals) vide order-in-appeal No. 338/JPR-II/2010, dated 30th August, 2010 in the case of M/s. Arvind Kumar & Company and order-in-appeal No 351/JPR-11/2010, dated 21-9-2010 in the case of M/s. Rohani Sharmik Theka Sahakari Samiti Ltd. held that while during the period prior to 16-6-2005, the activity of the appellants was not taxable as Cargo Handling Service, w.e.f. 16-6-2005, their activity was taxable under the heading "Site formation and clearance excavation and earth moving demolition services". The Commissioner (Appeals), accordingly upheld the service tax demands w.e.f. 16-6-2005 along with interest and also upheld the imposition of penalty on them under Sections 76 and 77 of the Finance Act. Against these orders of the Commissioner (Appeals), these two appeals have been filed along with the stay applications.

Appellant Contentions:-The learned Counsel for the appellant pleaded that, the activities of the appellants were mining services which became taxable w.e.f. 1-6-2007, that w.e.f. 1-6-2007, the appellant are being charged service tax by treating their activity as mining service, that it is settled law that when a new taxing entry is introduced from a particular date, during the period prior to that date; that item would not be taxable, that Tribunal in the case of Thriveni Earthmovers Pvt. Ltd. v. CCE, Salem reported in 2009 (92) RLT 676 (CESTAT-Chennai) = 2009 (15) S.T.R. 393 (Tri.-Chennai) has held that loading, unloading, transportation of limestone and rejects within mining area is mining service and not transportation service, that Tribunal in the case of M. Ramakrishna Reddy, Civil Contractors v. CCE & C, Tirupathi reported in 2009 (92) RLT 551 (CESTAT - Ban.) = 2009 (13) S.T.R. 661 (Tri.-Bang.) has held that excavation and removal of overburden and barites ore loading, transportation and unloading of ore are mining services, as essential character of these services is mining and not site formation, that same view has been taken by the Tribunal in the case of CCE, Hyderabad v. Vijay Leasing Company reported in 2011 (22) S.T.R. 553 (Tri. - Bang.), that in view of this, the impugned order is not correct, that the appellant have a strong prima facie case and, hence, the pre-deposit of Service Tax demands, interest and penalty may be waived for hearing of these appeals and recovery thereof may be stayed till the disposal of these appeals.

Respondent Contentions:-The learned Senior Departmental Representative, opposed the stay application and reiterating the findings of the Commissioner (Appeals) in the impugned orders-in-appeal, pleaded that the activity of the appellants had been correctly classified as "Site formation and demolition service", which was taxable during the period of dispute w.e.f. 16-6-2005. In support of his contention, he also cited the Board's Circular No. 232/2/2006-CX.4, dated 12-11-2007 wherein it had been clarified that excavation/drilling and removal of the overburdens are taxable under the category of "site formation and clearance, excavation and earth-moving and demolition service" w.e.f. 16-6-2005. He also cited the Tribunal's stay order in the case of Associated Soap Stone Distributing Co. P. Ltd. v. CCE, Jaipur reported in 2009 (14) S.T.R. 112 (Tri.-Del.), wherein it was held that though the appellant's agreement with M/s. Rajasthan State Mines & Minerals Ltd. was for mining of rock phosphate, which also involved removal of overburden, waste rock and secondary ore, their activity of removal of overburden, waste rock or secondary ore was taxable as "site formation and clearance, excavation and earth-moving and demolition of service” during period from 16-6-2005, even though w.e.f. 1-6-2007 they started paying service by treating their activity as mining. He, therefore, pleaded that this is not the case for total waiver.

Reasoning of Judgment:-We have carefully considered the submissions from both the sides and perused the records. From perusal of the appellant's agreement with Rajasthan State Mines and Minerals Ltd. and Aravali FCI, Bikaner, it appears that their contract is essentially for mining of the gypsum and other activities - removal of overburden, loading of gypsum in trucks and levelling of mine/area, maintenance of the ramps and/or access roads, etc., are ancillary or incidental to the main area ofthe mining. We find that same view has been taken by the Tribunal in the case of M. Ramakrishna Reddy, Civil Contractors v. CCE & C, Tirupathi (supra) and CCE, Hyderabad v. Vijay Leasing Company (supra). In view of this, the requirement of pre-deposit of service tax demand, interest and penalty is waived for hearing of these appeals and recovery thereof is stayed till the disposal of the appeals. The stay applications are allowed.

Decision:- Appeal allowed.

Comment:-The crux of this case is that if a service provider provides a couple of services then the services that are ancillary and incidental to the main service would be classifiable under the category of main service itself. In the present case, it appeared from the contract that the contract was essentially for mining of the gypsum and other activities like removal of overburden, loading of gypsum in trucks and levelling of mine/area, maintenance of the ramps and/or access roads, etc., were ancillary or incidental to the main area of the mining. Thus, the such activities were held to be taxable as mining services and not separately taxable as Site Formation and clearing services.

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PJ/Case Law/2013-14/1997

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