Calcutta High Court
Commissioner Of Service Tax Kolkata vs M/S Engineering Projects India Ltd on 4 April, 2025
Author: T.S Sivagnanam
Bench: T.S Sivagnanam
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OD - 17
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION [CENTRAL EXCISE]
ORIGINAL SIDE
CEXA/50/2024
IA NO: GA/2/2024
COMMISSIONER OF SERVICE TAX KOLKATA
VS
M/S ENGINEERING PROJECTS INDIA LTD
BEFORE :
THE HON'BLE THE CHIEF JUSTICE T.S SIVAGNANAM
-A N D-
THE HON'BLE JUSTICE CHAITALI CHATTERJEE (DAS)
Date : 4th April, 2025.
Mr. B. P. Banerjee, Adv.
Mr. Tapan Bhanja, Adv. ...for appellant.
Mr. Sumit Ghosh, Adv.
Mr. Sourodeep Majumder, Adv. ...for respondent.
The Court : This appeal filed by the Central Excise Department under section
35G of the Central Excise Act, 1944 (the Act) challenging the order passed by the
Customs, Excise and Service Tax Appellate Tribunal, Kolkata (Tribunal) in Service Tax
Appeal Nos.223 of 2010 and 228 of 2010 dated 3.8.2023.
The revenue has raised the following substantial questions of law for
consideration.
"a) Whether the Learned Tribunal has committed gross error of law by not
considering Services relating to mining for the period 16.06.2005 to 31.03.2008
as being already included as Service Tax under the category of Site Formation
and Clearance, Excavation and Earth Moving and demolition Services as
envisaged in [97a] respectively of Section 65 of chapter V of the Finance Act,
1994?
b) Whether the Learned Tribunal has committed gross error of law by not
considering that the services of construction of residential building rendered by
the Respondent is already falling under the purview of Service Tax as
construction of complex services within the meaning of Section 65[30] of the
Finance Act 1994 as amended and becomes chargeable to Service Tax with
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effect from 16.06.2005?
c) Whether the inclusion of the term Mining Service and Works Construction
Service with effect from 1.06.2007 clarifies the ambiguity created in respect of
chargeability of services rendered under the category of mining and construction
of residential building?
d) Whether the Learned Tribunal committed gross error of law by not considering
the contents of the Circular dated 12.11.2007 relied upon by the adjudicating
authority which clarifies that 'service provided by any person to any other
person in relation to mining of minerals, oil or gas' was brought under the ambit
of Service Tax w.e.f. 01.06.2007 and there was no bar in taxing the said
services provided to mining sector prior to 01.06.2007. "Site Formation Service"
is also a service provided to mining sector and taxable effective from
16.06.2005?
We have heard learned advocates on either side.
The issue which falls for consideration in this appeal is whether the demand of
service tax from the respondent/assessee under the category "Site Formation Services"
and "Construction of Industrial and Commercial Services" for the period from
16.6.2005 to 31.3.2008 was justified? and whether the department could have
invoked the extended period of limitation? The respondent/assessee is a Public Sector
Undertaking and during the period in question executed the contract for extraction of
coal from the mines of the Eastern Coalfields Limited (ECL).
The contract being a composite contract, the assessee did not pay service tax
nor collected the same from ECL. With regard to construction of residential complexes
which includes supply as well as the services, the assessee paid Sales Tax and Value
Added Tax under the provisions of West Bengal Sales Tax Act, 1944/West Bengal
Value Added Tax, 2003. The show-cause notice dated 16.12.2008 was issued to the
assessee demanding service tax under the head "Site Formation Services". The
assessee contended that the contract is a comprehensive contract and the department
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will not be justified in bifurcating this thing. The matter was adjudicated and the
demand made in the show-cause notice was affirmed and penalty was also imposed.
Challenging the said order, the assessee preferred appeal before the learned
tribunal. The learned tribunal examined the facts of the case and found that the
contract is clearly a comprehensive contract for the purposes mentioned above and
the activity done by the assessee is in relation to commissioning of coal and not for
site formation. The learned tribunal also referred to two decisions of the Co-ordinate
Bench of the learned tribunal. Reference has been made to the decision of the Hon'ble
Supreme Court in the case of Larsen & Toubro Ltd. , reported in 2015 (39) STR 913
(SC) wherein the Hon'ble Supreme Court held as follows :
"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.
We are afraid that there are several errors in this paragraph. The High
Court first correctly holds that in the case of composite works contracts, the
service elements should be bifurcated, ascertained and then taxed. The finding
that this has, in fact, been done by the Finance Act, 1994 Act is wholly incorrect
as it ignores the second Gannon Dunkerley decision of this Court. Further, the
finding that Section 67 of the Finance Act, which speaks of "gross amount
charged", only speaks of the "gross amount charged" for service provided and not
the gross amount of the works contract as a whole from which various deductions
have to be made to arrive at the service element in the said contract. We find
therefore that this judgment is wholly incorrect In its conclusion that the Finance
Act, 1994 contains both the charge and machinery for levy and assessment of
service tax on indivisible works contracts."
With the above reasoning, the tribunal accepted the case of the assessee and
held that no service tax is payable and the question of imposing penalty also does not
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arise. At this juncture, we refer to the decision in the case of Commissioner of Service
Tax, Kolkata vs. G.S. Atwal Engineering Pvt. Ltd., CEXA/11/2024 dated 9.7.2024
wherein more or less identical issue arose for consideration in the said appeal whether
the respondent/assessee therein was liable to pay service tax in respect of services
rendered by him which was essentially commissioning activities for the services,
activities prior to 1.6.2007. The court noted the factual background namely, the
activity done by the assessee therein which is also similar to that of the assessee in
this appeal and it was held as follows :
"That apart, the assessee had specifically contended that the Department
was not justified in artificially bifurcating the nature of services under various
categories, such as, cargo handling service, site formation and clearance service
and business auxiliary services and demanding service tax. The assessee by
placing reliance on the work orders had established before the Tribunal that the
services rendered by them was composite service and the Department was not
justified in creating an artificial bifurcation. Furthermore, the assessee's specific
case was that they entered into contracts with different owners of the mines
which are composite and inseparable; all the mining contracts specified composite
rates for the mining process comprising excavation and haulage of excavated
minerals, dumping of hauled materials at specified locations and all inclusive
rates were split up to identify cost for any specific activity along the mineral
extraction chain. Further, the assessee contended that they are a mining
contractor and is engaged in the mining operation as defined under the Mines
and Minerals (Development and Regulation) Act, 1957 for extraction of minerals
within the mining area. Thus, the assessee contended that in the light of the
composite nature of work, and inasmuch as the assessee was engaged in mining
activities, no service tax was payable prior to 1st June, 2007, when, for the first
time, mining service was included by Notification no.23/2007-SD dated
22.05.2007 (effective from 01.06.2007). This factual matters were considered by
the learned Tribunal and faulted the Department for creating an artificial
bifurcation of the mining activity done by the respondent/assessee while noting
that no such separate charges are payable to such service as per the work
orders. This factual finding cannot be rebutted by the Department in this appeal.
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That apart, the learned Tribunal had also taken note of the circular issued by
Central Board dated 12.11.2007 being Circular FL No. 232/2/2006-Cx.4,
wherein it was clarified that no service is leviable on mining activity prior to 1
June, 2007. The relevant paragraph of the Circular is quoted hereinbelow:-
*Coal cutting or mineral extraction and lifting them up to the pithead:
These activities are essential integral processes and are part of mining
operations. As stated earlier, mining activity has been made taxable by
legislation under the Finance Act, 2007(w.e.f. 1.06.2007). Prior to this date, such
activities, being part of mining operations itself are not subjected to service tax.
Therefore, no service tax is leviable on such activities prior to the said date."
Apart from that, we find that while invoking the extended period of limitation
the only allegation made against the respondent/assessee is that they have submitted
ST-3 return for the two services. The question would be whether this could be a sole
reason for invoking the extended period of limitation. The department is required to
show that there was omission and failure and suppression of material fact with an
intent to evade payment of service tax. This having not been clearly spelt out in the
show-cause notice, the case of the department cannot be improved at the stage of
adjudication, nor has it been done so in the instant case. Therefore, we find that this
is a case where the extended period of limitation could not have been invoked by the
department.
Thus, for the above reasons, the order passed by the learned tribunal requires
to be affirmed and, accordingly, the appeal stands dismissed and the substantial
questions of law are answered against the appellant/department.
.
(T.S. SIVAGNANAM)
CHIEF JUSTICE
(CHAITALI CHATTERJEE (DAS), J.)
Pkd./S.Das
AR[CR]
