Mining Royalty Under Leases Executed Before April 1, 2016 Not Liable To Service Tax; CESTAT Delhi Remands Demand
Pranav B Prem
The New Delhi Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has remanded a service tax demand raised on royalty paid to the State Government for grant of mining rights, holding that where the mining lease was executed prior to April 1, 2016, the applicability of service tax must be examined in light of the negative list regime under the Finance Act, 1994.
The Bench comprising Ms. Binu Tamta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member) was hearing an appeal filed by M/s R.D. Clay Mines Private Limited against an order passed by the Commissioner (Appeals), which had confirmed the demand of service tax along with interest and penalty for alleged non-payment of tax under the reverse charge mechanism on royalty paid for mining rights.
The Department’s case was that royalty paid to the Government for grant of mining rights constituted a taxable service and was liable to service tax under reverse charge. The adjudicating authority as well as the Commissioner (Appeals) accepted this view and confirmed the demand against the assessee.
Before the Tribunal, the assessee contended that its mining lease agreements were executed prior to April 1, 2016 and, therefore, the activity was covered under the negative list of services under Section 66D of the Finance Act, 1994, as it stood at the relevant time. It was argued that, prior to the amendment which came into force on April 1, 2016, services provided by the Government were largely covered under the negative list and were not exigible to service tax. The assessee relied on a series of Tribunal decisions which had consistently held that service tax could not be levied on royalty for mining rights for the period prior to the said date.
After considering the submissions, the Tribunal noted that the mining lease agreements, which were central to determining the applicability of service tax, were neither placed before the adjudicating authority nor before the Commissioner (Appeals). In the absence of the lease agreements on record, the Tribunal held that it was not possible to conclusively determine whether the leases were in fact executed prior to April 1, 2016 and whether the benefit of the negative list could be extended to the assessee.
The Bench referred to its earlier decisions, including The Principal Commissioner, CGST & Central Excise, Bhopal v. M/s S.R. Traders and Madhya Pradesh State Mining Corporation Ltd., wherein it was held that prior to April 1, 2016, services provided by the Government for grant of mining rights were covered under the negative list and were not liable to service tax. The Tribunal reiterated that only with effect from April 1, 2016, after the amendment to Section 66D, were such services brought within the tax net.
In this context, the Tribunal observed that the taxable event for service tax is the point in time when the service is provided or agreed to be provided. Where the agreement for grant of mining rights was executed prior to April 1, 2016, the provisions of service tax as they existed before that date would apply, and grant of mining rights by the Government was not taxable during that period.
In view of the above, the Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for fresh consideration. The adjudicating authority was directed to examine the mining lease agreements and decide the issue afresh in accordance with the settled legal position laid down by the Tribunal. The appeal was accordingly allowed by way of remand.
Appearance
For Respondent: Shri Rajeev Kapoor , Shri Shashank Yadav
For Appellant: Ms. Shradha Sareen
Case Title: M/s R.D. Clay Mines Pvt. Ltd. v. Commissioner (Appeals), CGST & Central Excise, Jodhpur
Case No: Service Tax Appeal No. 55087 of 2023
Coram: Ms. Binu Tamta (Judicial Member), Ms. Hemambika R. Priya (Technical Member)
