Excavation And Raising Of Ore Classifiable Under “Business Auxiliary Service” And Not Under “Mining Service”: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that excavation and raising of ore are classifiable under "business auxiliary service" and not under "mining service".

The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) has observed that where there is excavation or raising of ore, the same would not be classifiable under site formation service. The activity of excavating boulders would also not be a service simpliciter, as it involves further processes to make the boulders fit for client usage. Thus, the same would be classifiable under "business auxiliary service".

The appellant/assessee is engaged in providing the services of mining, transportation of the mined goods from mining sites to other places, and transportation of other goods to various principles or mine owners. The appellant entered into contracts with various principles for the provision of the requisite services. In each of these contracts executed between the appellant and the principals, separate rates have been mentioned for the services of mining and for the services of transportation, and the appellant has charged as per the services availed by the principals.

The appellant further contended that the mining activity provided by the appellant ceased as soon as the mineral was excavated. The transit slips were prepared by the appellant, and the goods were transported to plants, crushers, or other designated places located at a distance from the mines. The activity of transportation, according to the appellant, took place on a public road, and specific mention of the vehicle number and weight has also been made in the transit slip issued by the appellant.

The show cause notice was issued to the appellant, suggesting that the activity of transportation undertaken by the appellant would fall under the mining services. The appellant had to execute the entire work, from reject removal to ore drilling, blasting, raising, and transportation of limestone from the mines to the designated area, but the appellant did not discharge its service tax liability on the transportation of rejects. The show cause notice stated that the activity would come under the GTA and that service tax liability would have to be discharged by the service recipients.

The appellant contended that while proposing the demand for service tax, the department only considered the payment made in cash, and service tax paid through CENVAT credit was not considered.

The tribunal noted that the appellant and the mine owners are not composite in nature as they provide for separate activities to be undertaken by the appellant at separate rates. A perusal of the contracts leaves no room for doubt that the appellant had undertaken the activities of mining and transportation separately, for which separate charges were paid to the appellant by separate invoices. In a case where two separate activities are undertaken, even though the same may be provided under a single contract, they would have to be treated as two separate activities and taxed accordingly.

The CESTAT held that the activities of mobilizing equipment, removing top vegetation and overburden, drilling, blasting, excavating boulders, sorting and sizing boulders, crushing, and further transportation would be classifiable as site formation services.

Case Title: M/s. Rashleela Enterprises Pvt. Ltd. Versus The Commissioner

Case No.: Service Tax Appeal No. 50773 Of 2017

Date: 03.07.2023

Counsel For Appellant: B.L. Narasimhan, Purvi Asati

Counsel For Respondent: Harsh Vardhan

Click Here To Read The Order