Per : D.M. MISRA

1. This is an appeal filed against Order-in-Original No.BELEXCUS-COM-BHR-05 (ST)-14-15 dated 22.05.2015 passed by the Commissioner of Central Excise, Belgaum.

2. Briefly stated facts of the case are that the appellant under an agreement, titled as ‘Raising Agreement’ dt. 03.5.2003 with the lease holder of the mine M/s. Mysore Minerals Limited provided service of mining operations i.e., to explore, develop, excavate, to extract, grade, screen, size, sort and stock of iron ore minerals from Jambunathanahalli Iron Ore Mines to M/s. Mysore Minerals Limited. Alleging that the services rendered under the said agreement attracts service tax under clause (v) of ‘Business Auxiliary Services’ as defined under Section 65(19) of Finance Act, 1994 being Production or processing of the goods for, or on behalf of client taxable with effect from 16.6.2005, Show-cause notice was issued on 22.6.2006 proposing to recover Service Tax amount of Rs.1,55,17,723/- for the period 16.5.2005 to 31.03.2006 with interest and penalty. On adjudication, the demand was confirmed with interest and penalty. Hence, the present appeal.

2.1 At the outset, the learned advocate for the appellant has submitted that the appellant under the raising agreement with M/s. Mysore Minerals Ltd., mining lease holder in respect of mines in Jambunathanahalli village provided service for mining of iron ore from the said mine. Referring to various clauses of the said ‘Raising Agreement’ dated 03.05.2003 including clause (21), the learned advocate has submitted that for the activities viz. to explore, develop, excavate, to extract, grade, screen, size, sort and stacking iron ores narrated in the said Agreement, the appellant had charged and received Rs.188/- per metric tonne to every ton of calibrated iron ore and Rs.25/- per metric tonne for iron ore fines raised and generated by them. It is his contention that in terms of the said ‘Raising Agreement’ dated 03.05.2003, the appellant had undertaken and provided the services of mining operations which comprises of exploration, development, excavation, extraction, grading, screening, sizing, sorting and stacking of iron ores, etc., in the mines of the Appellant. Thus, the appellant has undertaken the activity of “mining of ores” under the said Agreement and not simply production of Iron ore for and behalf of the client. It is his contention that the learned Commissioner has erred in holding that the activities undertaken by the appellant fall under the category of ‘Business Auxiliary Services’ under clause (v) of the said taxable category.

2.2 It is his contention that levy of service tax on “mining of minerals” has been introduced with effect from 01.06.2007. Referring to the said definition of and the definition of ‘mine’, ‘minerals’ and ‘mining operation’ under the Mines Act, 1952, the learned advocate has submitted that the activities of excavation, extraction, grading, screening, etc., undertaken in the mines for the purpose of winning iron ore constitute ‘mining operations’ as per the Raising Contract read with Section 3(d) of the Mines and Minerals (Development and Regulation) Act, 1957. It is his argument that minerals are obtained from the earth by mining and not by production or processing and the same falls under the taxable category of “mining of mineral, oil or gas” as defined in Section 65(105)(zzzy) of the Finance Act, 1994 leviable to Service Tax with effect from 01.06.2007. Hence, the same activity does not amount to production or processing of goods as held by the learned Commissioner in the impugned order.

2.3 Further, referring to Section 65A of the Finance Act, 1994 relevant to classification of services, he has submitted that subclause which provides most specific description shall be preferred to sub-clauses providing a more general description. The Composite Services consisting of a combination of different services which cannot be classified in the manner specified in clause (a) shall be classified as if they consisted of a service which gives them their essential character. In support, he has referred to the judgment in the case of CCE, Cus. & ST vs. Federal Bank Ltd. 2016 (42) STR 418 (SC) and Hira Industries Ltd. vs. CCE, Raipur: 2012 (28) STR 23 (Tri.- Del.).

2.4 He further submits that in the present case, the activities carried out by the appellant are specifically covered under the category of taxable service of “mining of mineral, oil or gas” falling under Section 65(105)(zzzy) of the Finance Act, 1994, hence, taxable only with effect from 01.06.2007 and not for the earlier period under any other taxable category. In support, he has referred to the judgment of the Hon’ble Bombay High Court in the case of Indian National Shipowner’s Association vs. UOI: 2009 (14) STR 289 (Bom.) upheld by the Supreme Court reported in UOI vs. Indian National Shipowner’s Association: 2011 (21) STR 3 (SC).

2.5 Further, referring to the Circular No.334/1/2007-TRU dated 28.2.2007 issued by the Board, clarifying the scope of ‘mining of mineral, oil or gas’ services after the introduction of the said levy in 2007 Union Budget and further clarification vide Circular No.232/2/2006-CX.4 dated 12.11.2007, he has submitted that the instructions issued under the said circular are clear, unambiguous and binding on the authorities. It is clarified that the activities of exploration, extraction of minerals and lifting them up to the pit head are classified under “mining of minerals” which has become taxable with effect from 1.6.2007. In support he has referred to the following judgments:

(i) Tuli Construction Co. vs. CCE & ST, BBSR-II: 2019 (25) GSTL 43 (Tri.-Kol.)

(ii) CCE, C & ST, BBSR II vs. Ores India (P) Ltd.: 2012 (27) STR 188 (Tri.-Kol.)

(iii) Hazaribagh Mining and Engineering Pvt. Ltd. vs. CCE & ST, BBSR-II: 2017 (49) STR 289 (Tri.-Kol.)

(iv) CCE, C & ST, BBSR-II vs. B K. Thakkar: 2008 (9) STR 542 (Tri.-Kol.)

(v) CCE, Hyderabad vs. Vijay Leasing Company: 2011 (22) STR 553 (Tri.-Bang.)

(vi) Balaji Mines and Minerals Pvt Ltd and Ors. vs. CCE, Belgaum: 2020-TIOL-158-CESTAT-Bangalore

(vii) M Ramakrishna Reddy vs. Commr. of C. Ex. & Cus., Tirupathi: 2009 (13) STR 661 (Tri.-Bang.)

(viii) Associated Soapstone Distributing Co. P. Ltd. vs. CCE, Jaipur-II: 2014 (34) STR 865 (Tri.-Del.)

(ix) M/s G.S.Atwal & Co. Engineers Pvt. Ltd. Vs. Commissioner of Service Tax,Kolkata Final Order No. 75533/2023 dt.06.6.2023.

2.6 Further, he has submitted that since the issue relates to determination of classification of service rendered by the Appellant in the context of new levy of service is a matter of interpretation of law, hence imposition of penalty after an inordinate delay of adjudication is unwarranted and unsustainable in law. Since the appellant had deposited the entire amount of Service Tax during investigation in March 2006, hence Section 80 of the Finance Act, 1994 be invoked and penal provision be dropped.

3. Per contra, the learned Authorised Representative reiterated the findings of the learned Commissioner. It is his argument that in applying the judgments cited by the learned advocate for the appellant to the present case, the facts of the those cases has to be analysed and the judgment be understood in the context of the facts of the said case. He has submitted that in Indian National Shipowner’s Association case (supra), the appellants provided service to major exploration and production operators with their various vessels that include offshore drilling rigs, offshore support, vessels, harbour tugs and construction barges. The department demanded service tax from the appellant under the category of ‘mining of minerals’ services which was introduced from 01.06.2007. However, the claim of the assessee in the said case is that their service/activity is appropriately classifiable under “supply of tangible goods for use” under the Section 65(105)(zzzzj) of the Finance Act, 1994. The issue before the Hon’ble High Court was whether the activity of assessee is covered under ‘mining of minerals services’ before 16.5.2008 when the taxable category of service of “supply of tangible goods” had been introduced. The Hon’ble High Court held that the services rendered by the appellant would fall under the category of “supply of tangible goods for use” and not under the category of “mining of mineral service” since the activity had no direct nexus with the mining. In this context, an observation was made that Entry 65(105)(zzzzj) was inserted without amending the entry 65(105)(zzzy) and the latter entry is not a subspecies of the former. The Hon’ble Apex Court upheld the judgment of the Bombay High Court, however, not affirmed the view that if a service is added later into the taxable service list, it automatically means that the activity was not covered by the earlier taxable category. Therefore, if it can be established that the activity carried out by the appellant is covered under ‘Business Auxiliary Service’, it should be taxable up to 01.06.2007 under the said category.

3.1 Referring to the judgment of the Hon’ble Bombay High Court in the case of Commissioner of Income Tax vs. Sesa Goa (India) Ltd.: 2005 SCC OnLine Bom. 1650, learned Authorised Representative for the Revenue has submitted that from the observation of various High Courts referred to in the said judgment that the activity carried out by the appellant is indeed “production of goods and not mining of mineral, hence it could be inferred that the activities carried out by the appellant are squarely covered under the scope of ‘Business Auxiliary Service’. Also, it is argued that mining of minerals is a subspecies of production of goods, hence to that extent the judgment of the Hon’ble Bombay High Court in the case of Indian National Shipowner’s Association (supra) is not applicable to the facts of the present case. It is his contention that if the activities are covered under a General Entry and later a specific entry which might be carved out from the generic entry is introduced, then the said activity will be covered under both the entries. Referring to the Circular No. 232/2/2006-CX.4 dated 12.11.2007, the learned AR for the Revenue has submitted that principle applied in the said circular is very clear in the sense that if an activity is covered under an existing entry before introduction of mining services, then service tax is chargeable under that entry. He has pleaded that this circular does not subscribe to the principle that all activities related to mining are liable to Service Tax only after 01.06.2007. Applying the same principle to the extraction of minerals, it could be stated that the said activity be covered under any other entry. Therefore, it could be inferred that mining of minerals on contract basis is chargeable to Service Tax under ‘Business Auxiliary Service’ and the clarification issued by the Board cannot be applied ignoring provisions contained in the Act, which is very clear. Hence, appellant is liable to pay Service Tax for the mining activity under the category of Business Auxiliary Service for the disputed period. He has distinguished the judgments cited on behalf of the Appellant as follows.

(i) Tuli Construction Co. vs. CCE & ST, BBS II: 2019 (25) GSTL 43 (Tri.-Kol.) – The competing service was site formation and excavation service whereas the contract was a composite contract.

(ii) CCE, C & ST, BBS II vs. Ores India (P) Ltd.: 2012 (27) STR 188 (Tri.-Kol.) – In para 8, the Hon’ble Tribunal has said that the grounds of appeal by Revenue are beyond show-cause notice and also that the contract cannot be divided into separate activities. The decision is based on these grounds. Also, the judgment is not clear as to under which limb of Business Auxiliary Service, the Revenue was trying to classify the service. Also, there is no reason as to why it is mining service and no Business Auxiliary for the period concerned.

(iii) Hazaribagh Mining and Engineering Pvt. Ltd. vs. CCE & ST, BBSR II: 2017 (49) STR 289 (Tri.-Kol.) – The competing service is site formation service.

(iv) CCE, C & ST, BBSR II vs. B K Thakkar: 2008 (9) STR 542 (Tri.-Kol.) – Competing service is cargo handling service whereas the contract was a composite contract.

(v) CCE, Hyderabad vs. Vijay Leasing Company: 2011 (22) STR 553 (Tri.-Bang.) – Competing service is site formation service.

(vi) Balaj Mines and Minerals Pvt. Ltd. and Ors. Vs. CCE, Belgaum: 2020-TIOL-158-CESTAT-Bangalore – competing service is site formation service.

(vii) M. Ramakrishna Reddy vs. Commr. of C. Ex. & Cus. Tirupathi: 2009 (13) STR 661 (Tri.-Bang.) – Competing service is site formation service.

(viii) Associated Soapstone Distributing Co. P. Ltd. vs. CCE, Jaipur-II: 2014 (34) STR 865 (Tri.-Del.) – competing service is site formation service.

3.2 Referring to the Circular No.334/1/2007-TRU dated 28.02.2007 on classification of taxable service, learned Authorised Representative for the Revenue submits that the services rendered by the appellant are classifiable under ‘Business Auxiliary Service’.

4. Heard both sides and perused the records. The principal issue involved in the present appeal for determination is: (i) whether the activity/service rendered by the appellant in raising iron ore to the Appellant under agreement dated 03.05.2003 would fall under the taxable category of clause ‘Business Auxiliary Services’ as alleged by the Revenue or under ‘Mining of Minerals, Oil or Gas’ leviable to tax with effect from 01.06.2007; and (ii) imposition of penalty is justified.

5. The undisputed facts are that the appellants are manufacturers of alloys and non-alloys, steel billets, rods and bars. They had entered into an agreement on 03.05.2003 titled ‘Raising Agreement’ with M/s. Mysore Minerals Ltd., holder of mining lease of forest area in Jambunathanahalli village for mining of iron ore. The Revenue’s contention is that the activities undertaken by the appellant under the said agreement is a service falling under clause (v) of Business Auxiliary Service viz., ‘production or processing of goods for or on behalf of the clients’. Whereas, the appellant’s contention is that the service rendered by them to M/s. Mysore Minerals Ltd. under the said agreement dated 03.05.2003 viz., exploration, develop, excavate, extract, grade, screen, size, sort and stack, etc., of iron ores/minerals from the mines is a composite activity involving mining operation and not limited to production and processing of iron ore and hence, correctly classifiable under taxable category of ‘Mining of Mineral, oil or gas’ service inserted in Finance Act, 1994 with effect from 1.6.2007.

6. Before analyzing the rival arguments, it is necessary to refer to the relevant clauses of the ‘Raising Agreement’ dated 03.05.2003, which reads as:

The expression 'Mining Operations' is defined in the Agreement -

"Minerals” used in this Agreement shall mean and include all types and grades of Iron Ore including Calibrated Iron Ore, BFQ, BHQ and Iron Ore Fines;

"Mining Operations" used in this Agreement shall mean explore, develop, excavate, extract, grade, screen, size, sort and stack etc of iron ore/minerals from the mine.

Clause 3 The Second party shall during the continuance of this agreement scientifically and systematically carry-on mining operations to extract, excavate, raise, grade, screen, size, sort and stack etc., on the schedule area and thereafter the entire schedule area of the First Party.

Clause 4: The extraction of minerals from sand mine shall be carried out by the Second Party by itself or through other agency in accordance with the established mining practice, in conformity with the mining laws, rules and regulations for the time being in force.

Clause 5: Upon execution of this agreement the First Party shall hand over possession of the said mines to the Second Party, shall be entitled to enter upon the schedule land and to carry out all necessary operations for implementing the terms contained herein and putting up crushing and screening plant of required capacity and temporary constructions and maintaining structures such as huts, buildings, workshops, store house and any other such structure which may be necessary for the Second Party to carry on the mining operations strictly in conformity with the laws applicable to thesubject matter. It is clearly understood between the parties that the right granted to the Second Party to enter upon the said mines is only to carry out the mining operations and other incidental operations connected therewith.

Clause 7: The Second Party shall carry out mining operations systematically and in a scientific manner for the purpose of extracting, raising, grading, screening, sizing, sorting and stacking ores and also in respect of schedule area shown in the Schedule to this Agreement for which the first party has to submit the proof of lawful right to carry on mining operations based on present grant of lease or renewal thereof to the Second Party. The Second Party is bound and liable to carry out the mining operations as per the requirement of mining safety and other applicable laws.

Clause 9: The First Party agrees to permit the Second Party to excavate and extract the iron ore/minerals and carry on all incidental operations peacefully and in compliance of statutory obligations.

Clause 11: The First Party hereby agrees that the Second Party shall appoint a qualified Mining Engineer or Engineers as Designated Persons or Person on its roll and depute these persons (s) to the First Party for the operations of the mines for signing all papers, documents, etc relating to Mining Safety, Geological Department, Forest Department, Pollution Control and other Agency as Authorised Signatory on behalf of the First Party for smooth and efficient mining and related operations of the mines.

Clause 12: The Second Party during the continuance of this agreement systematically extract, grade and sort out the extracted iron ore/minerals from the said mine and deliver to the notified buyers ex-pit head as directed by the First Party without any interruption.

Clause 16: The Second Party shall:

(a) Lay and form and maintain such roads within the mining area which should be motorable for movement of trucks, machinery, etc;

(b) Lay such internal roads to stockyards, dumping yards, waste dumping yards, etc;

(c) Also lay such internal roads and develop all such areas inside the Scheduled property that may be required for mining and all activities incidental and ancillary activities connected therewith;

(d) Clear overburden in the Scheduled property as may be necessary for carrying out the mining operations in a systematic manner and in conformity with statutory requirements, and;

(e) Remove the debris that is required to be removed for the purpose of mining operations;

(f) Carry out such works as may be required to enable it to carry out mining operations discharging its other obligations under this Agreement fulfilling all the statutory requirements under the relevant mining laws;

(g) Be entitled to put up temporary structures like crushing and screening plant, electrical poles and overhead/underground cables, office, huts, sheds, store house or any other structures that may be necessary for carrying out mining operations and shall comply with all such requirements of law that govern erection of such structures.

As per the Mines and Regulations.

Clause 21: The First Party hereby agrees to pay to the Second Party a sum of Rs. 188/- per metric ton to every ton of calibrated Iron Ore, Rs 25/- per MT of Iron Ore fines raised and generated as given in SCHEDULE "D".

It is agreed by and between the Parties that the Second Party shall raise/produce Calibrated Iron ore, BHO of 10-30 mm sizes and iron ore fines so generated thereon....

It is agreed between the Parties that Second Party shall endeavour to optimize and maintain the production level for mutual benefit of both the Parties and to supply the iron ore/materials so extracted from Jambunathanahalli iron ore mines to the contracted Purchasers of the First party.

7. A plain reading of the stipulations in the agreement referred to above, it is clear that the agreement entered into by the appellant comprises host of activities/services referred to and necessary and incidental to mining operations within the mining area mentioned in the said Agreement. Broadly, the activity comprises of exploration, development, excavation, extraction, grading, screening, sizing, sorting and stacking, etc. Also, the Appellant is required to built and maintain necessary infrastructure by way of building internal roads, office premises etc. within the mining area in carrying out the mining activities. For undertaking all the activities, the appellant received consideration of Rs.188/- per metric tonne of calibrated iron ore and Rs.25/- per metric tonne of iron ore fines raised and generated, thus, the activities undoubtedly indicate that the appellant has provided services which are akin to the category of ‘mining of minerals’ service inserted in the Finance Act,1994 with effect from 1.6.2007. The activities undertaken by the appellant are composite in nature and involves not merely production of minerals but services before production and after production of the said minerals including building and maintenance of necessary infrastructure; hence, rightly covered under the scope of mining operations and not under ‘Business Auxiliary service’. 

8. Clause (v) of the Business Auxiliary Service reads as follows:

“Clause (v) of "Business Auxiliary Service" as defined in Section 65 (19) of Finance Act, 1994 reads as under:

[(19) "business auxiliary service means any service in relation to,

(i) …… (iv)

(v) production or processing of goods for, or on behalf of, the client;

but does not include any information technology service and any activity that amounts to "manufacture" within the meaning of Clause (f) of Section 2 of the Central Excise Act, 1944.

9. The taxable entry of ‘Mining of minerals, oil or gas” defined under Section 65(105)(zzzy) reads as follows:

“65(105)(zzzzy) – “taxable service” means any service provided or to be provided to any person, by any other person, in relation to mining of minerals, oil or gas”.

10. A comparison of both the entries in the context of the present Agreement, we find that mining service is more appropriate entry in comparison to Business Auxiliary Service which broadly covers activities of production or processing on behalf of the client, therefore, applying principles of classification mentioned under Section 65A of the Finance Act, 1994, the more specific description be preferred to the General description. Besides, we find that after introduction of the levy on mining operation, Circular No.334/1/2007-TRU has been issued by the Board on 28.02.2007 explaining the “Mining of Mineral, Oil or Gas’ service at para 6.2 of the said Circular which reads as follows:

“6.2 Mining Service [section 65(105)(zzzy)] : Presently, geological, geophysical or other prospecting, surface or subsurface surveying or map-making services relating to location or exploration of deposits of mineral, oil or gas are leviable to service tax under “survey and exploration of mineral service” [section 65(105)(zzv)]. Services such as

• site formation and clearance, and excavation and earth moving, drilling wells for production/exploitation of hydrocarbons (development drilling)
• well testing and analysis services
• sub-contracted services such as deploying workers and machinery for extraction/breaking of rocks into stones, sieving, grading, etc.
• outsourced services,

provided for mining are individually classified under the appropriate taxable service. Services provided in relation to mining of mineral, oil and gas are comprehensively covered under this proposed service. With this, services provided in relation to both exploration and exploitation of mineral, oil or gas will be comprehensively brought under the service tax net.”

11. Later, another Circular No.232/2/2006-CX.4 was issued on 12.11.2007 wherein paragraph 4 categorically clarifies that mining services are not leviable to service tax prior to 01.06.2007 which reads as follows:

“4 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. 1-6-2007). 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.”

12. Analysing the circulars mentioned above, it is clear that in the first circular it is clearly acknowledged that the proposed levy on mining services, earlier subjected to levy of service tax at different stages of winning of minerals e.g. ‘survey and exploration of mineral service”, ‘site formation service’, etc. had been subjected to service tax under individual entry. In the second circular, it is further clarified that the activities of coal cutting or mineral extraction and lifting them up to pithead being essential for and integral to the process of mining activity, cannot be subjected to service tax prior to 01.06.2007. Therefore, bringing all the activities/services necessary for winning of minerals under the scope of clause (v) of Business Auxiliary Service would be contrary to the said circulars which is binding on the department and also in consonance with the levy of mining service brought into the scope of service tax from 01.6.2007.

13. Recently, the Tribunal following the circulars and the judgments rendered earlier in the case of M/s. G. S. Atwal & Co. Engineers Pvt. Ltd. vs. CST, Kolkata vide Final Order No.75533/2023 considering and comparing the three competing services viz. Cargo Handling service, Business Auxiliary Service and Site Formation and clearance, excavation and demolition services with that of ‘mining services’ held that the activities carried out by the appellants, which are akin to the services rendered by the Appellant in the present case, fall under the scope of mining operations, hence, leviable to tax w.e.f. From 01.06.2007.

14. The reliance placed by the Ld. A.R. for the revenue on the judgement of the honourable Bombay High Court in CIT Vs Sesa Goa(I) Ltd.’s case in support of his contention that extraction of Iron Ore is not a simple processing activity but results into production of iron ore, hence covered under the scope of BAS, will not be of much help. In the said case the Hon’ble High Court was confronted with the issue under the income tax act where the question was whether the assessee is entitled for deduction on account of investment allowance when the assessee is engaged only in processing activity not in production and manufacture of any article or thing. Referring to the judgements of the Hon’ble Supreme Court and various high Courts, the Hon’ble High Court has held that the direction on account of investment allowance be admissible as it cannot be said that extraction of ore would not amount to ‘production’. We do not find such is the question raised in the present case. The issue involved in the present case is, whether the host of activities/service carried out by the appellant under the Raising agreement, result in the nature of service mentioned under clause(v) of Business Auxiliary Service or ‘Mining of Mineral, Oil or Gas’ services. Also, the Ld. A.R for the Revenue made an attempt to distinguish the case laws referred by the appellant submitting that the nature of competing service involved in these cases is different i.e., Site formation service, cargo Handling Service etc. hence not applicable to the present case. The said argument is devoid of merit. Reading the circulars and relevant entries, it is clear that the services provided by the appellant squarely fall under the category of mining services and in all these cases it has been consistently held that Mining service involves a host of activities and rendered under a composite contract which cannot be divided into individual components/service for levy of service tax on each service separately; and observed all these activities combined are rightly classifiable under ‘Mining of Mineral, Oil or Gas’ service leviable to service tax w.e.f 01.6.2007.

15. In view of above, the impugned Order is devoid of merit and accordingly set aside. The Appeal is allowed with consequential relief, if any, as per law.

16. Dictated and pronounced in Open Court.