Allocation Of Area Development Charges By The State Government Cannot Be Treated As Consideration Towards A Service: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the allocation of area development charges by the state government cannot be treated as consideration for service.

The bench of B. R. R. Kumar (Accountant Member) has observed that for a service to be taxable, it is necessary that there be a service provider and service recipient relationship between the two parties.

The appellant was granted rights to mine sand, rock, phosphate, flagstone, and coal by the Madhya Pradesh State Government. In lieu of the rights, the appellant was required to pay a royalty to the state government. The mining operations were carried out by the appellant either directly or through contractors for the disposal of sand. In some cases, the appellant also formed joint ventures with the contractors to jointly undertake the mining operations.

The appellant received area development charges from the state government to meet its administrative expenses. The amounts have been paid pursuant to the order issued by the state government. The order has sought to tax these amounts by treating them as "consideration" towards the provision of taxable service.

The issue raised was whether the appellant provided any services to the state government against the area development charges.

The CESTAT held that the appellant was entitled to 30% of the area development charges received by the state government. The charges were paid to the appellant for meeting its administrative expenses, especially since the appellant is operating as a public-sector undertaking of the state government. There was no mention of any service that would be performed by the appellant in exchange for the amount.

Case Title: M/s. The Madhya Pradesh State Mining, Corporation Limited Versus Pr. Commissioner, CGST & Central Excise

Case No.: Service Tax Appeal No. 52226 Of 2019

Date: 24.04.2023

Counsel For Appellant: B.L. Narasimhan, Kunal Aggarwal

Counsel For Respondent: Radhe Tallo

Click Here To Read The Order