Service Tax Determination of Value Rules to be resorted to only when consideration is not received in money.

PJ/Case Law /2013-14/2330

Case:-CORE MINERALS Vs THE COMMISSIONER OF SERVICE TAX, CHENNAI

Citation:- 2014-TIOL-1166-HC-MAD-ST

Brief facts:-C.M.A.No.285 of 2014 is filed against the Misc. Order No.42617 of 2013, dated 4.11.2013 passed by the Customs, Excise and Service Tax Appellate Tribunal, Chennai (for brevity, "the Tribunal"), directing the appellant to make a pre-deposit of Rs.2.50 Crores.

C.M.A.No.1320 of 2014 is filed against the Final Order No.40191 of 2014, dated 21.3.2014 passed by the Tribunal, dismissing the appeal filed by the appellant for non-compliance of the stay order under Section 35F of the Central Excise Act, 1944.

The substantial question of law that arises for consideration in these appeals is whether the Tribunal was justified in calling upon the appellant to make a pre-deposit of Rs.2.50 Crores for entertaining an appeal in terms of Section 35-F of the Central Excise Act, 1944.

The appellant is engaged in the business of providing mining services to Thakurani Mines and Nuagaon Mines. The appellant entered into two agreements with the persons holding mining licenses one for providing mining services and the other for purchasing the goods exclusively by the appellant from the license holders. We are now concerned with the agreement relating to providing of mining services and in terms of the said agreement, the owner of the mine has to pay a sum of approximately Rs.60/- per Ton for Lump Ore and Rs.40/- per Ton for Natural Fines to the appellant. The service tax, which is the subject matter of the present appeals, relates to the years 2007-2008 and 2008-2009. On the amount received under the agreement for providing mining services, the appellant paid service tax to the department to the tune of Rs.2.90 Crores. The department appears to have raised a dispute taking note of certain expenses shown by the appellant in the Profit and Loss Account Worksheet-III, which include the heads Over Burden Removal; Raising and Stacking Charges; Hire Charges; Mining Expenses, Screening Charges; Sampling and Analysis; Power and Fuel; Wages; Maintenance, etc., which, according to the department, have to be added to the value of the mining services for the purpose of determining the service tax.

Appellant’s contention: - The stand of the appellant before the Tribunal for seeking waiver of pre-deposit for the purpose of hearing the appeal, prima facie, is that the agreement for providing mining services is a specific agreement in respect of the services rendered, for which the value has already been fixed per Ton in respect of various categories of mining products and, therefore, the department is not entitled to take a different value for the purpose of determining the service tax. It is only in cases where there is no receipt of consideration in money either wholly or partly, the question of determination of value by other methods will arise. It was pleaded by the appellant before the Original Authority as well as the Tribunal that a specific agreement has been entered into for providing mining services; the value has been fixed, and service tax has been paid on the said sum and, therefore, the department is not entitled to add the expenses incurred by the appellant in the course of business of raising ore, which is not part of the agreement for providing mining services. It is another matter that the appellant incurred other expenses at their own cost, even though the agreement for providing mining services is for a lesser amount.

It is the further case of the appellant that the department is not entitled to reject the value as per the agreement for providing mining services and derive a different value under Rule 3 of the Service Tax (Determination of Value) Rules, 2006, as the said provisions of Service Tax (Determination of Value) Rules, 2006 will come into play only in a case that falls under Section 67(1)(iii) of the Finance Act, 1994, whereas the transaction in the present case falls under Section 67(1)(i) of the Finance Act, 1994.

Respondent’s contention:-The respondent pleaded that the stay order passed by the Tribunal is correct and appropriate and the same should be upheld.

Reasoning of judgment:-Heard Mr.Arvind P.Datar, learned Senior Counsel appearing for the appellant and Mr.V.Sundareswaran learned Standing Counsel appearing for the first respondent and perused the documents filed in support of these appeals.

We find that there are two specific agreements one in respect of providing mining services and other in respect of purchase of goods. One is independent of the other. However, insofar as the service tax component is concerned, the department is proceeding on a premise that there is suppression of value. That issue will have to be decided on the touchstone of Section 67(1) (i) of the Finance Act, 1994. If a specific amount is charged by the service provider under the mining services agreement that agreement has to be tested on its own merits in terms of Section 67(1) (I) of the Finance Act, 1994. Nevertheless, falling upon Rule 3(b) of the Service Tax (Determination of Value) Rules, 2006, overlooking the provisions of Section 67(1)(i) of the Finance Act, 1994, may not be justified.

Further, Rule 3(b) of the Service Tax (Determination of Value) Rules, 2006 will come into play only when the value of such taxable service cannot be determined under Rule 3(a) of the Service Tax (Determination of Value) Rules, 2006. Prima facie, there is no cogent reason shown in the order of adjudication as to how Rule 3 of the Service Tax (Determination of Value) Rules, 2006 will come into play when there is a specific agreement for providing services, indicating the value. The reasoning given by the Tribunal that the minerals received back from the service recipient are sold by the appellant for profit and such back to back agreements act as vehicles of undervaluation is an issue which has to be gone into on merits in the appeal considering all issues, including the two agreements. The department has to first come to the conclusion that the provisions of Section 67(1) (i) of the Finance Act, 1994 will not apply to the facts of the present case before proceeding to contend that there is an element of undervaluation. No provision of law under the Finance Act, 1994 or the Service Tax (Determination of Value) Rules, 2006 calls upon the assessee to prove the cost of services in any particular manner. In this case, the agreement for providing mining services stands and the appellant has paid service tax in accordance with the value in the said agreement. In any event, Rule 4 of the Service Tax (Determination of Value) Rules,2006 provides for the method in which the Central Excise Officer can satisfy himself as to the accuracy of any information furnished or document presented for valuation and it provides for a procedure. Such procedure has not been followed in the instant case.

The plea of financial hardship has been raised by the appellant before the Tribunal and that has also been recorded in paragraph (8) of the order of the Tribunal. We find much force in the plea of the appellant regarding undue hardship and financial difficulty in pursuing the appeal on payment of the pre-deposit as ordered by the Tribunal. The same, therefore, requires to be modified considering the prima facie case of the appellant. The payment already made by the appellant towards tax and the further payment that we are ordering will safeguard the interest of the Revenue as well. For the foregoing reasons and taking note of the fact that the appellant had already paid a sum of Rs.2.90 Crores towards service tax, we pass the following order:

(i) On the question of law raised, we are of the view that the Tribunal was not justified in ordering the pre-deposit in the manner stated in its order dated 4.11.2013;

(ii) Consequently, the order of the Tribunal dated 4.11.2013 is modified to the effect that the appellant shall make a pre deposit of Rs.1, 00, 00,000/- (Rupees One Crore only) towards the claim of service tax on or before 18.8.2014 and subject to such compliance, as stated in the order of the Tribunal dated 4.11.2013, the pre-deposit of balance amount demanded shall remain waived and its collection shall stand stayed during the pendency of the appeal before the Tribunal.

(iii) the order of the Tribunal dated 21.3.2014 dismissing the appeal for non-compliances of the stay order is set aside and the appeal is restored to the file of the Tribunal.

Decision:-Appeal disposed.

Comment:-The essence of this case is that reference is to be made to Rule 4 of the Service Tax Determination of Value Rules, 2006 only when consideration for the provision of service is not received in money or where there is doubt as regards accuracy of information submitted for valuation. However, in the present case, there were separate agreements entered into by the assessee, one for provision of mining services and other for supply of goods. In such a situation, the revenue department could not have resorted to Rule 4 of the Valuation Rules merely because they suspected undervaluation of services by the assessee. Undervaluation is different thing and Rule 4 does not call upon the assessee to prove the cost of services in any particular manner.Accordingly, the service tax deposited by the assessee was considered and the stay order was modified so as to order pre-deposit of Rs. 1 Crores as against earlier pre-deposit order of Rs. 2.5 Crores.

Prepared By: - Lovina Surana

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PJ/Case Law /2013-14/2330

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