Per Shri T. K. Jayaraman This appeal has been filed against Order in Original No. 13/2006 (Commr.) dated 26.09.2006 passed by the Commissioner of Customs and Central Excise, Hyderabad I Commissionerate.
2. The appellants are engaged in the process of washing of raw coal with the help of water. This is called beneficiation. They are also undertaking certain Auxiliary Services such as co-ordination with SCCL, bill preparation, bill payment, issue/permits. All the above activities are done on behalf of the clients such as M/s. Karnataka Power Corporation, Bangalore and M/s. Orient Cement. Revenue proceeded against the appellants on the ground that they had not paid service tax for the above activities in the category of Business Auxiliary Services. The learned Adjudicating Authority gave a finding that the appellant rendered service in the category of Business Auxiliary Service which is liable to Service Tax. He confirmed a payment of Rs 1,80,84,957/- (Rs 1,77,30,349/- Service Tax + Rs 3,54,608/- Education Cess). The period involved is from 10.09.2004 to 31.08.2005. The longer period in terms of proviso to section 73 (i) of the Finance Act has been invoked. Interest under Section 75 has also been demanded. Penalty equal to the tax confirmed has been imposed under Section 78 of the Finance Act. Further, under Section 76 penalty of Rs 100 per day has been imposed. The appellants are highly aggrieved over the impugned order. Therefore, they have come before this Tribunal for relief.
3. Shri A.P. Datar, learned Senior Counsel assisted by Ms. Rukmani Menon, lerarned Advocate, appeared on behalf of the appellants. Shri R.P. Raheja, learned JCDR appeared for the Revenue.
4. We heard both sides.
5. The main contention of the appellant is that the activity of washing of coal is an integral part of mining of coal. The coal in India has a very high ash content and unless washing is done, the coal would be unfit for use either in thermal power station or in the manufacture of steel. Various statutory provisions and other documents were cited by the learned Advocates to establish that washing of coal is an integral part of mining and every coal mine must have a coal washery. Reliance was placed on the following decisions of the Honble Apex Court. a. Bharat Cocking Coal Ltd. & Other Vs. State of Bihar & Other - 1990 (4) S.C.C 557 b. State of West Bengal Vs. Kesoram Industries & Others - 2004 (10) S.C.C 201 5.1. If the activity of the appellant is considered as mining, the said activity would not be liable to service tax under Business Auxiliary Service for the period prior to 01.06.2007. Mining was introduced as a taxable service only with effect from 01.06.2007.
6. The learned Advocates invited our attention to Section 65 (19) (v) which refers to production of goods. With effect from 16.06.2005, this clause was changed to read : Production or processing of goods for, or on behalf of the client. If at all the activity of washing of coal is considered as business auxiliary service it can be treated only as processing of goods. The word production is synonymous with manufacture and will not cover processing. As processing has been included in Business Auxiliary Services only from 16.06.2005, Service Tax liability will arise only from that date. This was an alternative submission.
7. The period of demand is from 10.09.2004 to 31.08.2005. Therefore, even if washing of coal is not taken as mining, duty demand can be sustained only from 16.06.2005, the impugned order proposes to levy service tax under the category of Business Auxiliary Services. The following activities of the appellant are proposed to pay taxes under Business Auxiliary Service: a. To liaison with SCCL and receive/take delivery of raw coal i.e. as per the schedule b. To undertake all incidental / auxiliary services such as permits, clearances, liaison with Railway authorities, organize railway siding at the loading points. c. To ensure that the wagons are not overloaded and supervise the transportation by keeping themselves apprised and be thoroughly conversant with the Rules and regulations of Railway / coal companies and any other related agencies. d. To ensure dispatch of coal and to comply with the documentation formalities and prescribed procedure of Railway. e. To undertake cleaning, washing, screening and sizing of coal f. To arrange for delivery of beneficiated coal as per the monthly / quarterly schedules. g. To utilize the services of Coal Transport Agency (CTA) for making. h. To dispose the rejects
8. The allegation is that the above services are covered by clauses (v) & (vii) of Section 65 (19). The above activities have nothing to do with any taxable services. At best, washing / cleaning of coal will amount to processing which will be taxable only from 16.06.2005, the other activities connected with collection and transportation of coal cannot be treated as any Business Auxiliary Services. Moreover, when the contract is composite for supply of washed coal, it is not open to the department to vivisect the contract. The dominant intention alone must be taken. Reliance was placed on the decision of the Apex Court in the case of BSNL Vs. State of U.P 2006 (3) S.C.C 1.
9. As the demand was under the bona fide belief that the activities carried out by them are not liable to service tax, they did not register themselves and discharge the tax liability. Therefore, longer period cannot be invoked. Reliance was placed on the following decisions: a. 2002 (146) E.L.T. 481 (S.C.) - Jaiprakash Industries Ltd. Vs. Commissioner of C. Ex. Chandigarh b. 2005 (188) E.L.T. 251 (S.C.) Gopal Zarda Udyog, Vs. Commissioner of Central Excise, New Delhi
10. The learned Advocate argued at length inviting our attention to the various documents and statutory provisions relied on.
11. The learned JCDR took us through the Adjudication Order and stated that for the relevant period, the appellants were engaged in the production of coal and such an activity is clearly taxable under the Business Auxiliary Service. He requested the Bench to uphold the impugned order.
12. We have gone through the records of the case carefully. The main activity of the appellant is the washing of coal and supplying the same to M/s. KPCL. When the coal is washed, the ash content is removed and the coal can be used in the power plants. The incidental activity carried out by the appellant on behalf of KPCL have already been enumerated. In terms of the contract, the appellant receives Rs 1885 per MT. The above rate is inclusive of cost of coal, washing charges, railway freight, all taxes, duties, service tax any other taxes and levies etc. In the cases of contract with M/s. Orient Cements Ltd. the transportation of raw coal from mines to Washery and washed coal from washer to M/s. Orient Cements Company will be arranged by the Cement Company and the appellant has to render the services of cleaning, washing, screening and sizing etc. and supply of beneficiated coal for which service, the appellant is receiving Rs 120 per tone towards beneficiation charges. The Adjudicating Authority in Para 12 of the impugned order has narrated the process of beneficiation of coal. The following is the relevant extract from his order:
12. M/s. Aryan are mainly receiving raw coal on behalf of dirrerent consumers having size ranging from 1 to plus 250 mm and discharged into Hopper. The raw coal is fed on 1000 mm primary Belt conveyor through 400 TPH Vibraing Feeder. The Primary belt is discharging coal into a Hopper fitted with a grizzly. The plus 200 mm coal is sent to Rotary Breaker where the coal is crushed down to 50 mm and mixed with the crushed product. The shales and stones will be recovered from the discharge end of Rotary Breaker and collected in a Dry Reject Bunker. Plus 50 mm size coal is passed through the Double Roll Crusher to reduce the size to minus 50 mm. The crusher output as well as the minus 50 mm coal from the Rotary Breaker are screened in a Double Deck 50/25 mm size vibrating screen. The 50-13 mm coal is washed in a barrel washer and collected separately in an Overhead Bunker. The minus 13 mm coal is collected in an Overhead Bunker and rejects from Barrel washer is collected in a wet reject Bunker. Beneficiating involves cleaning, washing, screening and sizing of coal. In the whole process, although the raw coal is washed with plain water, it continues to remain coal and it is regarded as coal only.
13. Initially the appellant contended that the process undertaken by them amounted to manufacture. Therefore, they would not be liable to service tax. However, the said contention of the appellant was negatived by the learned Adjudicating Authority. The learned Adjudicating Authority held that that the process of beneficiation of coal does not amount to manufacture. During the proceedings before the Tribunal the appellant did not stress this point. The request of the appellant to restrict the value of services rendered to KPCL to Rs 68.64 per MT was not accepted by the Adjudicating Authority. The proposal in the Show Cause Notice to charge the entire receipt from KPCL to service tax was confirmed by the Adjudicating Authority. In Para 43 of the impugned order the Adjudicating Authority has justified the invocation of the longer period.
14. On going through the contract with the KPCL, we are satisfied that the dominant activity of the appellant is beneficiation / washing of coal. The appellant has been associated in the meeting of expert Committee (Thermal and coal mining) held on 19 & 20th December 2000 on coal mining projects. The Coal Mines (Nationalisation) Act, 1973 defines under Section 2(h) Mine. Mine means any excavation where any operation for the purpose of searching for or obtaining minerals has been or is being carried on, and includes (i) all borings and bore holes; (ii) all shafts, whether in the course of being sunk or not; All lands, buildings, and equipments belonging to the owner of the mine, and in, adjacent to or situated on the surface of, the mine where the washing of coal obtained from the mine or manufacture, therefrom, of coke is carried on. Similar definition is appearing in Section 2 (g) (x) of the Coal Mines (Taking Over of Management) Act, 1973. The Coking Coal Mines (Emergency Provisions) Act, 1971 has also defined mine in similar manner. In all the enactments relating to coal mining, washing of coal has been treated as part of the mining activity. As laymen we tend to think that mining means only digging deep into the earth and extracting the minerals. However, in the statutory provisions the definition of mining appears to be very wide. In the Colliery Control Order Section 2 ) defines Colliery. Colliery means any mine or open working where winning or extraction of coal is the principle object of the mining, quarrying or any other operation carried on therein, and includes a plant for the production of coke or for the washing of coal. When the ash content of the coal is very high, the quality is poor. The Mines and Minerals (Development and Regulation) Act, 1957 in the second schedule gives the different gradations of coal. Among the gradation, washery grade is clearly indicated. From all this, it is clear that washing of coal is also a part of mining activity. In the functions and responsibilities of the Department of Coal of the Government of India, there is mention about development and operation of coal washeries other than those for which department of steel is responsible. Coal washeries may be set up by coal consumer or by an operator for obtaining coal of desired quality to meet the demand and supply of washed coal. Possible allocation of the washery may be near pithead in general. The Coal (Nationalization) Act, 1973 was amended w.e.f 09.06.1993 to allow coal mining for captive consumption for generation of power, washing of coal obtained from a mine and other end uses to be notified by Government from time to time, in addition to the existing provision for captive coal mining for production of iron and steel. The learned Advocate brought to our notice an important decision of the Honble Apex Court in the case of Bharat Cocking Coal Ltd. Vs. State of Bihar & Other cited (supra.) In the said decision the scope of the definition of mining operation and mine were examined by the Apex Court. It was held that the slurry which is deposited on the riverbed is not dumped there artificially by any human agency instead coal particles are carried to the riverbed by the flow of water through natural process. Therefore, any operation for the extraction or lifting of the coal particles from the river bed would involve mining operation within the meaning of Section 3 (d) of the Act (Mines and Minerals Regulation and Development) Act, 1957. The expression mining of mineral in the definition of mining operation under Section 3 (d) of the Act is spacious enough to comprehend every activity by which a mineral is extracted or obtained from the earth irrespective of whether such activity is carried out on the surface or in the bowels of the earth. It is not a requirement of the definition of mining operation, that the activity for winning the mineral must necessarily be an underground activity. The essence of mining operation is that it must be an activity for winning a mineral whether under the surface or winning the surface of earth.
15. It was also held that the coal that is extracted from the coal mine is crushed into pieces and thereafter it is washed to remove its impurities and ash contents to make the coal fit for sale. After the coal is washed, it assumes the form of coke, which is sold to consumers. The washery, wherein the process of washing coal is carried on, for the purpose of preparing the coal for sale is an integral part of a mine as it involves ancillary process. Washery is included within the definition of mine under the Mines Act, 1952. In the decision of the Apex Court in the case of State of West Bengal Vs. Kesoram Industries & Others - 2004 (10) S.C.C 201, the Apex Court has observed that the definition of mineral is wide. Coal washing plants or coking coal or quarries coal mines and washed coal, slurry, and cokes of different grades would also come within the definition of coal. In view of the above observations we are of the considered view that the beneficiation of coal carried out by the appellant is definitely a part of mining activity. The service provided by to any other person is relating mining or case has been brought under the ambit of service tax w.ef. 01.06.2007. As washing of coal is recognized as a part of mining activity in the enactment relating to mining, in our view the washing or beneficiation of coal would be liable to service tax only w.e.f. 01.06.2007. In the case under appeal the period is prior to 01.06.2007 and therefore our conclusion is that for the relevant period the activity carried out by the appellant would not be liable to service tax as mining service.
16. Once it is established that the activity of the appellant is mining, it cannot be taxed under the Business Auxiliary Service for the period prior to 01.06.2007. Even when we examine the definition of business auxiliary service, it is seen that production which does not amount to manufacture comes under business auxiliary service. The beneficiation of coal does not amount to production of coal because beneficiation is a process, which enhances the quality of the coal. However, in the definition of business auxiliary service, an amendment was carried out to include process also w.e.f. 16.06.2005. The appellant has made an alternative submission that if the activity carried out by them is not considered as mining activity the demand can be sustained only from 16.06.2005 to 31.08.2005 only. There are sufficient grounds to hold that the activities carried out by the appellant amounts to mining service. When such a view is taken, the appellant would not at all be liable to service tax for a period prior to 01.06.2007. In view of this, we are not going into the valuation of the service liable to service tax. In fine, the impugned order cannot be sustained. Hence, we allow the appeal with consequential relief. (Pronounced in open Court on ) (T.K. JAYARAMAN)Member (T) (S.L.PEERAN) Member (J) //iss//
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