Calcutta High Court
Commissioner Of Service Tax Kolkata vs M/S Emta Coal Limited on 14 May, 2025
Author: T.S. Sivagnanam
Bench: T.S Sivagnanam
2025:CHC-OS:70-DB
OD - 9
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION [CENTRAL EXCISE]
ORIGINAL SIDE
BEFORE :
THE HON'BLE THE CHIEF JUSTICE T.S SIVAGNANAM
-A N D-
THE HON'BLE JUSTICE CHAITALI CHATTERJEE (DAS)
CEXA/9/2025
IA NO: GA/2/2025
COMMISSIONER OF SERVICE TAX KOLKATA
VS
M/S EMTA COAL LIMITED
Ms. Manasi Mukherjee, Advocate
Mr. Bijitesh Mukherjee, Advocate ....for the Appellant.
Dr. Samir Chowdhury, Senior Advocate
Mr. Abhijit Biswas, Advocate
Mr. Bhaskar Sengupta, Advocate ....for the Respondent.
HEARD ON : 14.5.2025
JUDGMENT ON : 14.5.2025
T.S. SIVAGNANAM, CJ. :
1. This appeal filed by the revenue under Section 35G of the Central Excise Act,
1944 (the Act) challenging the order passed by the Customs and Central Excise
And Service Tax Appellate Tribunal, Kolkata Eastern Zonal Bench, Kolkata (the
Tribunal) in Service Tax Appeal no.273/2012 dated 30.11.2023.
2. The revenue has raised the following questions of law for consideration.
"a. Whether the Learned Tribunal, while dropping of the demand of
Service Tax Rs. 11,64,74,435/ on Site Formation and Clearance,
Excavation and Earth Moving and Demolition Services for the period from
16.06.2005 to 31.05.2007, erred in not considering that, Circular No.
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F.No.B1/6/2005-TRU dated 27.07.2005 explains the scope of new
services and proposed expansion in the scope of existing services w.e.f.
16.06.2005, in terms of Notification No. 15/2005-ST dated 07.06.2005.
b. Whether the Learned Tribunal has failed to consider, Paragraph
6 of the instant circular F.No.B1/6/2005-TRU dated 27.07.2005 takes up
the scope of 'Site formation and clearance, excavation, earth moving and
demolition services'. As mentioned at paragraph 6.2 of thereof, the
definition of site formation and clearance, excavation and earthmoving and
demolition is an inclusive one and the activities specifically mentioned are
indicative and not exhaustive.
c. Whether the Learned Tribunal failed to consider that, as per the
referred paragraph, prior to mining activities, preparation services, like that
of site formation and clearance, excavation and earthmoving or levelling,
such as, blasting and rock removal work, clearance of undergrowth,
drilling and boring, overburden (OB) removal and other development and
preparation services of mineral properties and sites, and other similar
excavating and earthmoving services, would fall within the scope of 'Site
formation and clearance, excavation, earth moving and demolition
services'.
d. Whether while dropping the instant demand of Rs.2,09,43,980/-
on mining service for 2008-09 raised on the differential amount between
Balance Sheet & Service Tax return figure, the Learned Tribunal erred in
considering that, while dropping the said demand, the adjudicating
authority gave cognizance to the Chartered Accountant certificate furnished
by M/s EMTA to the effect that the differential amount was attributable to
the provision of closing stock of coal available at pithead stock of their
mining clients/principals on the last day of the involved Financial Year
2008-09 for which no invoice/bill was raised during the Financial Year
2008-09 and also that the invoice/bills had been duly raised by the
assessee on delivery of such coal to the power plants and as such included
in the ST-3 returns for the subsequent Financial Year 2009-10.
e. Whether the Learned Tribunal erred in not appreciating that, the
Adjudicating Authority gave no observation regarding verification of any
documents, especially the invoices which, as certified by the Chartered
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Accountant, were issued in the subsequent financial year. It is to be
mentioned here that, no verification regarding and discharge of the
involved Service Tax liability was done by the adjudicating authority. The
adjudicating authority appears to have also not offered any observation
whether the relevant documents confirming reflection of realization of the
involved amounts as income of M/s EMTA were at all verified."
3. We have heard Ms. Manasi Mukherjee, learned advocate appearing for the
appellant and Dr. Samir Chakraborty, learned senior advocate appearing for the
respondent/assessee.
4. Though the revenue has raised the above substantial questions of law, there are
only two issues involved in the instant appeal, namely - whether the learned
Tribunal was right in confirming the order passed by the adjudicating authority
dated 14.3.2012 with regard to the demand of service tax under 'site formation
and clearance, excavation and earth moving and demolition service' for the
period 16.6.2005 to 31.5.2007? The second issue is whether the learned
Tribunal was right in dropping the demand of service tax amounting to
Rs.2,09,43,980/- alleging short payment?
5. With regard to the first issue namely, site formation and clearance, excavation
and earth moving and demolition service, the adjudicating authority has taken
note of the notification no.15/2005-ST dated 7.6.2005 and took note of the
reference made in the show-cause notice with regard to the services needed for
coal mining/extraction and held that the scope of the service has been
explained in the Board's circular dated 27.7.2005 and this taxable service
covers certain activities like site formation and clearance, excavation and earth
moving and demolition. The adjudicating authority thereafter proceeded to take
note of the definition of open cast working and held that during the material
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period site formation etc. services were not considered as mining services which
was evident from the circular dated 27.5.2007. Noting the language and the text
of the circular, the adjudicating authority held that in no way this inclusive
nature would include services related to mining in it; rather it included all such
activities those are needed prior undertaking mining and, therefore, the circular
remains in conformity with the statute.
6. The next aspect which was dealt with is with regard to the mining services and
what does it comprise of and after noting the facts the adjudicating authority
pointed out that site formation services have all the ingredients to be included
in the scope of mining services but it can never be a substitute of mining
services. After recording various decisions of the Co-ordinate Benches of the
learned Tribunal it was pointed out that it has been consistently settled that by
looking into the purpose for which the contract/agreement was made and in all
the decided cases the agreement/contract was made in relation to mining the
services which otherwise would fall under site formation etc. services would not
be taxable upto 31.5.2007. The adjudicating authority examined the agreement
dated 14.3.1997 executed by the respondent/assessee with M/s. BECML and
noted the scope of service and, more particularly, that the assessee shall get
payment on the volume of coal production from the mines at a base price
calculated by reducing the prevailing base price on the date of supply of coal of
respective grades by 21% per ton as per clause 8 for the services rendered by
them as detailed in the agreement. Therefore, the adjudicating authority
confirmed that the assessee was entrusted to undertake raising of coal and to
effect delivery to the power plant of the principals and the raising of coals
carried out by the assessee on contract basis are of composite nature and it
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does not consist of several independent services like site formation etc. and the
same cannot be vivisected.
7. Thereafter, the adjudicating authority examined the terms and conditions of the
agreement dated 21.1.2002 executed by the assessee with M/s. PANEM which
also provided that the entire gamut of services which were encompassed in the
mining activity. Thus, on going through both the agreements it is evidently clear
that they were executed for the purposes of mining of coal and, therefore, the
services rendered by the assessee cannot be considered as site formation and
clearance, excavation and earth moving and demolition services for the period
from 16.5.2005 to 31.5.2007. Furthermore, it is clear from both the agreements
that there was no mention of any separate consideration for overburden
removal or site formation and the payments were received by the assessee only
on basis of the removal of coal. This finding rendered by the adjudicating
authority while dropping the demand vide order dated 14.3.2012 was examined
for its correctness by the learned Tribunal and the facts of the case were re-
appreciated, more particularly, the terms and conditions of the agreement and
the learned Tribunal agreed with the adjudicating authority. The law on the
subject has been well settled and this court had an occasion to consider more
or less same identical issue in the case of Commissioner of Service Tax Kolkata
vs. M/s. Engineering Projects India Ltd., 2025 (4) TMI 773 - Calcutta High
Court, wherein reference was made to the decision of the Hon'ble Supreme
Court in the case of M/s. Larsen & Toubro, reported in 2015 (39) STR 913 (SC),
wherein it was 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
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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."
8. Following the above decision, the appeal filed by the revenue was dismissed as
composite contract should not be artificially bifurcated for service tax purposes
and no service tax was payable for mining related services prior to 1.6.2007.
The correctness of the decision in the case of M/s. Larson & Toubro (supra) was
argued before the Hon'ble Supreme Court in the case of Total Environment
Building Systems Pvt. Ltd. vs. Deputy Commissioner of Commercial Taxes,
2022 63 GSTL 257 (SC) wherein the Hon'ble Supreme Court held that the
review of the case law in M/s. Larson & Toubro cannot be entertained as the
said judgment stood the test of time and has never been doubted earlier and
followed consistently by the Hon'ble Supreme Court as well as the various High
Courts and Tribunal, wherein the Hon'ble Supreme Court held as follows :
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"22. As already noted, the definition of works contract was
brought under the service tax net as per Section 65(105)(zzzza) of the
Finance Act, 1994 by the insertion of the said definition. The said
introduction was made pursuant to the Finance Act, 2007, which
expressly made the service element in such works contract liable to
service tax w.e.f. 1st June, 2007. By the said amendment, works
contract which were indivisible and composite could be split so that
only the labour and service element of such contracts would be taxed
under the heading "Service Tax".
23. It is in the above backdrop that the definition of Works
contract inserted for the first time by virtue of Section 65(105)(zzzza)
under the Finance Act. 2007 assumes significance and has to be
applied w.e.f. 1st June 2007. Thus, on and from the enforcement of
the amendment in the Financial Year 2007, i.e.,1st June, 2007 the
tax on the service component of works contract became leviable.
Therefore till then it was not so leviable as there was no concept of
works contract under the said Act.
24. Recognising this aspect of the matter in Larsen and Toubro
Ltd. (supra), this Court held that Service Tax on works contract was
not leviable, meaning thereby, that such tax on the service component
of works contract as defined above did not attract Service Tax prior to
the amendment."
9. In the light of the above, the finding rendered by the learned Tribunal was fully
justified.
10. The next issue is with regard to dropping of the demand to the tune of
rs.2,09,43,980/- which related to short payment of service tax. The defence
raised by the assessee was that this short payment is attributable to the
provision of closing stock of coal value on the last day of the financial year
ending 31.3.2009 at pithead stock of mining clients, the principle of the
assessee for which no invoice/bill was raised during the respective financial
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years. Further, the assessee contended that the figures of closing stock have
been taken in the profit and loss account and the balance-sheet for the
financial year 2008-09 as the accounting is done under the mercantile system.
Further, it was contended that since neither any invoice/bill was raised nor any
payment was raised for the said closing stock of coal available at pithead as on
31.3.2009, no service tax was, therefore, payable in respect of the said coal
during the year 2008-09. The assessee placed reliance on a certificate issued by
the statutory auditor, wherein it was seen that the assessee is not permissible
to raise invoice to the joint venture companies, i.e., the power utility companies
towards the mining services rendered to facilitate extraction of quantity of
material lying at stock of mines pit head and/or loading point but not delivered
to the power plant. Further, under the Mercantile System of accounting the
expenditure incurred on account of extraction of such quantity of material lying
at the mine stock as on the date of balance-sheet are chargeable to the profit
and loss account and, therefore, provision was also required to be made in the
annual accounts as 'income from mining services' against the value of such coal
stock at the mine site not eligible for invoice by the firm to the respective joint
venture companies. The adjudicating authority noted that the statutory auditor
have also certified to the effect that the decisions between income of the firm
from mining services during the period from 1.4.2008 to 31.3.2009 as per the
service tax return and the amount received in the annual accounts of the year
ended 31.3.2009 is attributable to the said provision of income from mining
services made in the annual accounts on stock of material not delivered to the
power plant and not invoice to the joint venture companies. Thus, the
adjudicating authority gave due regard to the certificate issued by the statutory
auditor and found that the matter has been completely reconciled and,
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consequently, set aside the demand of Rs.2,09,43,980/-. The learned Tribunal
examined the correctness of the finding recorded by the adjudicating officer and
also the fact that the statutory auditor have given a certificate which is
completely reconciled the differences, affirmed the order of the adjudicating
authority. We find that the tribunal rightly concurred with the finding rendered
by the adjudicating authority, who had rightly taken note of the fact of the
certificate issued by the statutory auditor. Thus, we find that the learned
Tribunal was right in rejecting the revenue's appeal.
11. For the above reasons, this appeal is dismissed and the substantial questions of
law are answered against the revenue.
12. The stay application, GA/2/2025 stands disposed of accordingly.
.
(T.S. SIVAGNANAM)
CHIEF JUSTICE
I agree.
(CHAITALI CHATTERJEE (DAS), J.)
SM/pkd
AR[CR]
