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BBRIEF FACTS OF THE CASE :-

M/s. Mahalaxmi Infracontract Pvt. Ltd., (formerly known as M/s. Mahalaxmi Engineering Company) having office at B-21, Corporate House, Opp. Pakwan, S. G. Highway, Bodakdev, Ahmedabad – 380 054 (herein after referred to as “M/s. Mahalaxmi” for the sake of brevity) is engaged in providing services of Cargo Handling service, Transport of Goods by Road Service, Mining Services, Work Contract Service, Supply of Tangible Goods Service and Site Formation and Clearance, Excavation and Earthmoving and Demolition Services and they hold Service Tax registration No. AAGCM4615ESD001. Initially M/s. Mahalaxmi obtained serviced tax registration No. AR/GIM/MNG-032/07-08 dated 24-01-2008 from Service Tax Office at Gandhidham. Later on, they shifted their office from Gandhidham to B-21, Corporate House, Opp. Pakwan-II, S.G. Highway Road, Ahmedabad and obtained centralized registration No. AAGCM4615ESD001 dated 10-06-2010 from Service Tax Office, Ahmedabad.

2. INTELLIGENCE GATHERED:

2.1 Intelligence gathered by the Directorate General of Central Excise Intelligence, Ahmedabad Zonal Unit, Ahmedabad (here-in-after referred to as ‘DGCEI’ for the sake of brevity) indicated that M/s. Mahalaxmi executed works of mining as sub-contractors to main contractors but they did not pay service tax in the years 2006-07 and 2007-08. In furtherance of intelligence, search was conducted in the office premises of M/s. Mahalaxmi at B-21, Corporate House, Opp. Pakwan, S. G. Highway, Bodakdev, Ahmedabad on 23-01-2012. Relevant documents were withdrawn under Panchnama dated 23-01-2012 (RUD NO. 1).

2.2 Several incriminating documents such as agreements entered with main contractors, income ledger accounts of the years 2006-07 to 2010-11, copies of invoices / bills issued, copies of bank statements were withdrawn under panchnama dated 23-01-2012 for further examination.

3. STATEMENT DATED 23-01-2012 OF SHRI HIRALAL DHOLU, DIRECTOR OF M/S. MAHALAXMI:

3.1 Statement of Shri Hiralal Dholu, Director of M/s. Mahalaxmi was recorded on 23-01-2012 (RUD NO. 2) wherein he deposed as under: -He stated that M/s. Mahalaxmi Engineering Company was started as infrastructure service providing company in the year 1994 at Bhuj as a partnership company. He was one of the partner. They were in the business activity of undertaking various works relating to mining, construction of canals, hiring of equipments for mining and construction related works, etc. In April, 2010, their company was converted in to a private limited company and shifted their office to Ahmedabad. Name of their company was renamed into M/s. Mahalaxmi Infracontract Pvt. Ltd since then and functioning from B-21, Corporate Office, Opp. Pakvan, S. G. Highway, Bodakdev, Ahmedabad.

He stated that their company got registered with service tax department in Gandhidham Service Tax Office under Mining of minerals, oil and gas service and held service tax registration No. AR/GIM/MNG-032/2007-08 dated 24-01-2008. However, after shifting of office to Ahmedabad, they had obtained centralized registration from Service Tax Office at Ahmedabad and hold Service Tax registration No. AAGCM4615ESD001 dated 10-06-2010 for the services of Cargo Handling service, Transport of Goods by Road Service, Mining Services, Work Contract Service, Supply of Tangible Goods Service.

He stated that they obtained contracts for mining activities from other main contractors and provide services to such main contractors as sub-contractors. In these type of activities, their role was restricted to supplying of equipment to the main contractors for carrying out mining activities. They raised bills for hiring of equipments. In the years

F. NO. STC/4-7/O&A/DGCEI/2012-13

2006-07 and 2007-08, they had provided mining equipments such as dippers, tippers, showels, bulldozers, etc on hire. Since the service of hiring of equipments were not taxable to service tax in these years, they did not charge and did not pay service tax. He submitted that in the years 2006-07 and 2007-08, their company did not executed any mining work as a main contractor.

He stated that from 2008-09 onwards, their company was paying service tax on the mining activities carried out as main contractor as well as sub-contractors.

He stated that in the year 2006-07 and 2007-08, they had hired mining equipments to M/s. Ranjit Construction Co, Ahmedabad for mining activities carried out at Bikaner Site, Rajpardi (Gujarat). Work in these sites were still in progress.

On being asked as to how they could claim that initially in the years 2006-07 and 2007-08, their company had only hired equipment of mining and from 2008-09, for the same field, their company claims the activities under mining, he stated that in the year 2006-07 and 2007-08, they were not much aware about provisions of service tax on the business activities of their company. Thus, they were showing description of hiring of equipments in the bills. However, after knowing levy of tax on mining activity specifically, they had come to know about the exact nomenclature of activity. Accordingly, they started paying service tax from March, 2008 onwards.

He stated that as soon as they came to know about the levy of service tax on mining services, they took legal opinion and as per the advice given by their consultant, they had started paying service tax under mining services from March, 2008 onwards.

On being asked if their view were to be true, service tax on mining services was taxable from 01-06-2007. Why did not their company pay service tax from June, 2007 onwards. He stated that they were informed by their main contractor that they had paid service tax on entire amount and therefore they were not required to pay service tax. Thus, they were under bonafide belief they did not pay service tax.

On being asked that as per the provisions of the Finance Act, 1994, service tax is to be paid by the service provider. There is no provision exempting sub-contractor from payment of service tax. CBEC vide Circular No. 96/7/2007-ST dated 23-08-2007 has clarified that sub-contractors are also liable to pay service tax. How could they claim there was no service tax liability as sub-contractor. He stated that he did not have expertise to comment on this legal issue.

He stated that he remained present during the search proceedings conducted in their office. Panchnama was recorded in cordial manner and no untoward incident took place.”

3.2 Shri Hiralal Dholu, Director of M/s. Mahalaxmi stated that his company was engaged in mining activities as sub-contractor of main contractors and as main contractors. M/s. Mahalaxmi was functioning from 102, Shanti Chambers, Near Bank of Baroda, Station Road, Bhuj and obtained service tax registration No. AR/GIM/MNG-032/2007-08 dated 24-01-2008 from Service Tax Office at Gandhidham. Their company name was changed from M/s. Mahalaxmi Engineering Co to M/s. Mahalaxmi Infracontract Pvt. Ltd in April, 2010. Subsequently they shirted their office from Bhuj to Ahmedabad at B-21, Corporate House, Opp. Pakwan, S.G. Highway, Bodakdev, Ahmedabad and obtained centralized registration No. AAGCM4615ESD001 dated 10-06-2010 for the services of Cargo Handling Service, Transport of Goods by Road Service, Mining Services, Work Contract Service and Supply of Tangible Goods Service. On being asked as to why they did not pay service tax, he replied that they were providing mining services which was brought under service tax net w.e.f. 01-06-2007. In the years 2006-07 and 2007-08, they were providing mining services to main contractors.

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Besides, he also justified non-payment of service tax by saying that they had only hired mining equipments to the contractors. Hiring of equipments has become taxable w.e.f. 16-05-2008. Further, they were informed by their main contractors that they had paid service tax on the entire amount and therefore M/s. Mahalaxmi was not required to pay service tax. Under this bonafide belief they did not pay service tax.

3.3 He was confronted with the CBEC Circular No. 96/7/2007-ST dated 23-08-2007 wherein it is clarified that sub-contractors are also liable to pay service tax. After specifically informed about their liability to pay service tax, they agreed to pay service tax under mining services w.e.f. 01-06-2007.

4. FURTHER STATEMENT DATED 13-03-2012 OF SHRI HIRALAL DHOLU, DIRECTOR OF M/S. MAHALAXMI:

4.1 Further statement of Shri Hiralal Dholu, Director of M/s. Mahalaxmi was recorded on 13-03-2012 (RUD NO. 3). He submitted as follows :-

He perused his earlier statement dated 23-01-2012. He put his dated signature on it in token of confirmation.

He submitted the following information / documents:-1) Copy of agreement dated 09-06-2006 entered with M/s. Sadbhav Engineering Ltd, Ahmedabad for “Hiring of heavy earth moving equipment for excavation and allied work at GHCL Lignite mine, Khadsaliya, Bhavnagar;2) Copy of agreement dated 21-09-2006 entered with M/s. Ranjit Construction Co, Ahmedabad for carrying out mining work at Barsinagar Lignite Mine Project, Rajasthan along with copies of RA bills;3) Copy of agreement dated 18-12-2006 entered with M/s. Ranjit Construction Co, Ahmedabad of check-dam at Nana Bhadhia, Kutch.

He stated that their main activity was relating to mining of coal/lignite. In the years 2006-07 and 2007-08, they were working as sub-contractor of M/s. Ranjit Buildcon Ltd and M/s. Sadbhav Engineering Ltd. The details of works undertaken by their company was briefed as under: -

a) They had entered into an agreement with M/s. Ranjit Buildcon Ltd for mining work at Barsinagar Lignite Mine Project, Bikaner, Rajasthan as sub-contractor and commenced mining works from 07-08-2006 onwards. This project was still in progress. b) They had entered into agreement dated 20-09-2007 with M/s. Ranjit Buildcon Ltd, Ahmedabad for mining of lignite at Amod Lignite Mine, Rajpardi Project, District-Bharuch, Gujarat. They had started mining activity from September, 2007 onwards. Initially they were of the view that as the main contractor was paying service tax, their company was not required to pay service tax on the activity carried out as sub-contractor. Therefore there was no mention about service tax liability in their agreement. However, after they realized the liability to pay service tax as sub-contractor, they had the original agreement dated 20-09-2007 amended vide Supplementary agreement dated 01-07-2008 to the effect that the contract value did not include service tax. That is, the main contractor would reimburse the value of service tax paid by their company.c) They had undertaken mining work at Khadsalia Lignite Mines, Bhavnagar as sub-contractor from 01-04-2006 and this project was concluded in August, 2008.d) They have carried out mining activity at Bina Extension OCP of M/s. Northern Coalfield Ltd as sub-contractor of M/s. Sadbhav Engineering Ltd. This project was started in November, 2007 and completed in November, 2010.

He further state that they had obtained service tax registration on 24-01-2008 and started paying service tax forthwith. That is from January, 2008 onwards, they have

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been regularly paying service tax under mining services and GTA services. They were under bonafide belief about non taxability for the past period to their company because they were undertaking mining activity as sub-contractors. Their main contractors were paying service on the entire value of services which included the value of services provided by their company as sub-contractors. Therefore, they were of the view that if they pay service tax then it would become double taxation on the same transaction. There cannot be double taxation on any service. He produced copies of challans evidencing service tax payment made by their main contractor viz., M/s. Ranjit Buildcon Ltd for their Rajpardi and Bikaner sites.

It was only during officers’ visit to their office on 23-01-2012, they realized their liability to pay service tax in the past period also. Upon taking legal opinion, they had realized that service tax was to be paid on the income derived from mining income from 01-06-2007. But only for the services where their company executed work as main contractor.

He further state that their company has been paying service tax appropriately from January, 2008 onwards. However, due to clerical error, on some bills, service tax was not paid in the year 2008-09. The details of service tax left out was as under: -

(Amount in Rs.)Sr. No. Date of bill RA

No. Issued to whom Site Value Amt. of Service Tax

1 21-04-2008 3 Ranjit Buildcon Ltd Rajpardi 2,07,20,395 25,61,041

2 21-04-2008 40 Ranjit Buildcon Ltd Bikaner 1,08,24,328 13,37,887





7 09-07-2008 43 Ranjit Buildcon Ltd Bikaner 2,26,800 28,032

8 10-07-2008 44 Ranjit Buildcon Ltd Bikaner 24,38,579 3,01,408

TOTAL 9,68,69,330 1,19,73,049

Their company has started depositing service tax as stated above and paid service tax of Rs. 75,00,000/- through e-payment till 29-02-2012. They were committed to pay remaining amount of service tax along with interest.

However, he reiterated that their company was not liable to pay service tax on the income earned from mining activity before 01-06-2007. Therefore no liability lies on their company.

On being asked to give the authority under which exemption was provided for the services provided as sub-contractors he stated that Tribunal in various judgments held that when main contractors pay service tax on entire value, sub-contractors needs not to pay service tax. He produced copy of Tribunal, Ahmedabad’s order dated 26-10-2009 in case of M/s. Urvi Construction Vs. Commissioner of Service Tax, Ahmedabad, Tribunal, Bangalore’s order dated 26-10-2007 in the case of M/s. Evergreen Suppliers Vs. CCE reported at 2008 12 STJ 297 CESTAT Bangalore and a copy of clarification dated 31-01-2006 issued by the Joint Commissioner, Service Tax, Ahmedabad regarding non taxability of service provided by sub-contractors to the main contractors.

He stated that they were informed by their main contractors (M/s. Ranjit Buildcon Ltd) that they had obtained clarification from the department that no service tax was payable

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by the sub-contractors because main contractors were paying service tax on the full value. Therefore they did not pay service tax.

As abundant precaution, they had also consulted with their tax consultant regarding their service tax liability on mining services provided by their company as a sub-contractor after mining services is brought under service tax net. It was advised to obtain service tax registration and pay service tax. After this, they approached their main contractors for reimbursement of service tax separately in addition to bill value. Their company had also obtained service tax registration in January, 2008 and since then, they have been paying service tax on the value of taxable services provided either as sub-contractor or main contractor.

He was asked to refer to CBEC’s Circular No. 96/7/2007-ST dated 23-08-2007 wherein it is specifically clarified, “A sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the sub-contractor. Services provided by sub-contractors are in the nature of input services. Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services. The fact that a given taxable service is intended for use as an input service by another service provider does not alter the taxability of the service provided”. He was asked to clarify why cannot their services be taxed to service tax. He reiterated that service tax was not payable in view of the judgements of Tribunal as stated above.

He was asked to peruse CBEC’s Circular No.232/2/2006-CX dated 12-11-2007 wherein it is clarified that prior to 01-06-2007 a) Excavation / drilling and removal of overburdens are classifiable under site formation service; b) activities of coal cutting and mineral extraction and lifting upto pit head are exempt; and c) activities handling and transportation of coal / mineral from pit head to a specified location within the mine / factory or for transportation out side the mines are chargeable to service tax under cargo handling service or under transport of goods by road service. Why not activities (a) & (c) carried out by their company not liable for service tax?

He stated that the above cited circular was applicable only for the cases where separate contracts / agreements were executed for different activities. But in their case, they had entered into a composite contract for carrying out mining activities with main contractors. Their was a single contract entered and bills were also raised showing description of “Removal of over burden of first dig (solid by hiring of HEMM such as Excavators, dumper, drills, dozer, graders and water tankers for composite work consisting of blast hole drilling, blasting, excavation, loading, transportation of broken rock / soil / earth, dumping, spreading etc by mechanical means as per instruction of Engineer Incharge at specified places”. It can be seen that in all their bills, they had shown mining as a composite work and paid service tax accordingly. They had never entered into contract for different activities of removal of overburden and excavation, coal cutting and mineral extraction and lifting upto pit head and transportation of coal from pit head to a specified location separately.

On being asked to clarify that from the description of activity such as “Removal of over burden of first dig (solid by hiring of HEMM such as Excavators, dumper, drills, dozer, graders and water tankers for composite work…”, their service should fall under site formation service prior to 01-06-2007. He stated that their company carried out work of mining of coal / minerals as per the agreements entered with the mine owners or with main contractors. The primary objective of the activity is to extract coal from beneath the earth’s soil. In order to extract coal/ mineral different activities such as excavation, processing i.e., grading, sorting and related / incidental transport, loading activities etc are all incidental to the main activity of mining. Therefore all these activities were to be

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seen as a composite work and classification of the service was accordingly determined. Therefore, as per their view, they had provided services for mining of coal / lignite which was appropriately classifiable under Mining of Mineral, Oil or Gas Service. Their claim is coherent with the guidelines prescribed under Section 65A(2)(b) of the Finance Act, 1994.

He submitted that the Tribunal, Bangalore vide its order in the case of M/s. Commissioner of Central Excise, Hyderabad V/s. M/s. Vijay Leasing Company has held that the activity of site formation is incidental to contract of mining and the activity of mining was not taxable prior to 01-06-2007.

On being asked to give the details of work executed relating to construction of Nana Bhadiya Bandhra as sub-contractor of M/s. Ranjit Buildcon Ltd He stated that they had undertaken work of construction of check dam for storage of water for harvesting of at Nana Bhadiya. This is the scheme of Gujarat State Government to construct check dams for the welfare of the villages and this work was awarded by Executive Engineer, Irrigation Division, Kutch District. It was relating to irrigation work. Therefore, no service tax is payable.

From the copies of ST-3 returns it was found that their company had taken CENVAT credit on capital goods in the years 2007-08 and 2008-09. He was asked to give the details of capital goods credit taken. He stated that they had taken CENVAT credit on capital goods in the years 2007-08 and 2008-09, which included dippers and tippers. The Commissioner of Central Excise, Rajkot had already issued show cause notice No. V.ST/AR-GND/Commr/234/2010 dated 14-10-2010 for recovery of capital goods credit amounting to Rs. 3,44,24,871/-. He produced a copy of the said show cause notice.

4.2 Shri Hiralal Dholu, Director of M/s. Mahalaxmi stated that activity carried out by them was relating to mining of mineral which was liable to service tax w.e.f. 01-06-2007. Prior to this date, no service tax was payable by them. Moreover, they carried out mining activity as sub-contractor of main contractors. Their main contractors were paying service tax on the entire value of contract, which included value of sub-contract executed by them. Therefore, M/s. Mahalaxmi was not liable to pay service tax. However, they had obtained service tax registration under mining services in January, 2008 and thereafter, they had been paying service tax regularly even on the value of mining activity carried out as sub-contractor. He admitted that there was an error in payment of service tax of Rs. 1,19,73,049/- during the period from April, 2008 to July, 2008. They agreed to pay this amount of service tax along with interest.

5. SCRUTINY OF INFORMATION / DOCUMENTS RECEIVED FROM M/S. MAHALAXMI:

5.1 Documents withdrawn under Panchnama dated 23-01-2012 and information received subsequently and facts deposed under statements recorded under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 were scrutinized and analysed. It was found that M/s. Mahalaxmi was mainly engaged in business activities relating to removal of overburden by hiring of equipment such as excavators, tippers / dumper, drills, dozer, graders and water tanker for composite work consisting of blast hole drilling, blasting, excavation, loading, transportation of broken rock / soil/ earth, unloading/dumping, spreading, dozing, water sprinkling and grading etc. by mechanical means. In the years 2006-07 to 2008-09, they were executing works as sub-contractors of M/s. Ranjit Buildcon Ltd and M/s. Sadbhav Engineering Ltd on back to back basis.

5.2 From the information gathered, it was found that M/s. Mahalaxmi did not pay service tax on the pre-text of hiring of equipments for mining activity by misinterpreting the wording of mining contracts as “Hiring of HEMM equipments….” in the business parlance. Hiring of equipment is covered under supply of tangible goods

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service which is brought under taxable net w.e.f. 16-05-2008. Copies of agreements and invoices issued in the years 2006-07 and 2007-08 were also concocted showing the activity as renting of equipments in order to camouflage their activity of removal of overburden, extraction of mineral, transportation and dumping of soil and transportation of mineral from pit head to the place of storage.

5.3 During the course of search conducted in their office premises situated at B-21, Corporate House, Bodakdev, Ahmedabad, incriminating documents such as copies of agreements entered with main contractors, RA bills issued by M/s. Mahalaxmi to main contractors on the basis of CUM (cubic meter) of soil dug out, certificates issued by main contractors stating the yearwise quantity and value of work executed by M/s. Mahalaxmi were withdrawn from their office.

5.4(i) In the years 2006-07 and 2007-08, M/s. Mahalaxmi had executed work as sub-contractor of M/s. Ranjit Buildcon Ltd at sites of Amod Lignite Mines, Rajpardi Projects and at Barsinagar Lignite Mines Project, Bikaner, Rajasthan and as a sub-contractor of M/s. Sadbhav Engineering Ltd at Khadsalia, Bhavnagar. These facts have come to light from the certificates issued by these main contractors which were seized as per serial No. A-19 of Annexure – A of Panchnama dated 23-01-2012. The contents of the certificates are briefed as under: -

a. Certificate Issued by M/s. Ranjit Buildcon Ltd: M/s. Ranjit Buildcon Ltd, Ahmedabad vide certificate dated 09-02-2010 (RUD NO. 4) has certified that M/s. Mahalaxmi had executed the work of overburden material in all kind of strata including its drilling, blasting, excavation, loading, transportation and dumping, spreading, dozing at specified places for the exposure of lignite at Barsinagar Lignite Mines Project, Rajasthan as their sub-contractor during the period from 07-08-2006 to 31-01-2010. This is the ongoing project and the proposed completion date is 20-09-2013.

b. Certificate Issued by M/s. Ranjit Buildcon Ltd: M/s. Ranjit Buildcon Ltd, Ahmedabad vide certificate dated 05-09-2011 (RUD NO. 5) has certified that M/s. Mahalaxmi had executed the work of “Overburden removal and lignite loading at Amod Lignite Mines, Rajpardi Projects” as a sub-contractor during the period from 07-08-2007 to 31-07-2011.

c. Certificate Issued by M/s. Sadbhav Engineering Ltd: M/s. Sadbhav Engineering Ltd, Ahmedabad vide certificate dated 17-04-2008 (RUD NO. 6) has certified that M/s. Sadbhav Engineering Ltd was awarded the work of “Hiring of HEMM Equipments for excavation and allied works at Khadsalia Lignite Mines, Bhavnagar vide LOI No. GHCL:LIG:BVN:505:05-06 dated 22-09-2005. This work was executed by M/s. Mahalaxmi Engineering Company, Kutch as a sub-contractor during the period from 01-02-2006 to 31-03-2008.

d. Certificate Issued by M/s. Sadbhav Engineering Ltd: M/s. Sadbhav Engineering Ltd, Ahmedabad vide certificate dated 05-09-2011 (RUD NO. 7) has certified that M/s. Sadbhav Engineering Ltd was awarded the work of removal of overburden of first dig (solid) by hiring of HEMM such as excavators, dumper, drills, dozer, graders and water tanker for composite work consisting of blast hole, drilling, blasting, excavation, loading, transportation of broken rock / soil/ earth, dumping, spreading etc. by mechanical means as per instruction of engineer incharge at specified places at Bina Extension OCP of NCL was awarded vide LO No. NCL.SGR.CMC/BINA-EXTN/AGR/OB/42 dated 21-02-2008. This work was executed by M/s. Mahalaxmi Infracontract Pvt, Ltd, Kutch as a sub-contractor during the period from 29-11-2007 to 28-11-2010.

e. Certificate Issued by M/s. GHCL Ltd (Service Recipient): M/s. GHCL Ltd (Lignite Division), Bhavnagar vide letter No. GHCL:LIG:BVN:292:2008 dated 21-10-2008(RUD NO. 8) certified that the work of hiring of HEMM equipments for excavation and allied work at Khadsalia Lignite Mines, Bhavnagar was awarded to M/s. Sadbhav Engineering Ltd, Ahmedabad vide LOI No. GHCL:LIG:BVN:505:05-06 dated 22-09-2005. M/s. Mahalaxmi Engineering

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Company, Kutch was engaged by M/s. Sadbhav Engineering Ltd to work as sub-contractor during the period from 01-02-2006 to 31-03-2008.

5.4(ii) In all the above referred certificates, it was mentioned that M/s. Mahalaxmi had provided services relating to “over burden material in all kind of strata including its drilling, blasting, excavation, loading, transportation and dumping, spreading, dozing at specified places for the exposure of lignite”. In these certificates, quantity of overburden removed and value of service in rupees was depicted. This proves beyond doubt that they provided services relating to overburden removal in the mining areas. In none of the certificate, number of machineries deployed and number of working hours of such machines was mentioned. This proves that M/s. Mahalaxmi claim of providing of services of merely hiring of equipments was baseless and incorrect.

5.4(iii) Further, M/s. Mahalaxmi has been issuing RA bills (Running Account) for the services provided. RA bills ware issued only for those contracts where value / quantity of contract was predetermined and to know the amount of work completed till the date of billing. In the cases of pure hiring of equipments rate was either fixed on number of days of operation or on number of hours worked. For example, for work at site of Bikaner (Barsinagar) work completed upto 30-06-2008 (RA No. 44) bills were issued for hiring of equipment and for the same site for the period from 01-07-2008 onwards (RA No. 46) bills were issued for overburden removal based on quantity removed per CUM. Similarly, for work at site of Rajpardi work completed upto 15-05-2008 (RA No. 05) bills were issued for hiring of equipment and for the same site for the period from 01-06-2008 onwards (RA No. 06) bills were issued for overburden removal based on quantity removed per CUM (All four bills available at file mentioned at Sr. No. 9 of Annexure – A of Panchnama dated 23-01-2012). There cannot be two system of billing for the work carried out at a single site. This was purely manipulated for suppressing the facts with an intent to evade payment of service tax in guise of exempted services.

5.5 (i) As stated above, in the years 2006-07 and 2007-08, M/s. Mahalaxmi executed work as a sub-contractor of M/s. Ranjit Buildcon Ltd, Ahmedabad and M/s. Sadbhav Engineering Ltd, Ahmedabad. For M/s. Ranjit Buildcon Ltd, Ahmedabad, M/s. Mahalaxmi executed works at Barsinagar Lignite Mines, Rajasthan (work at this site commenced on 07-08-2006 and still in progress as on date) & at Rajpardi Lignite Mines, Gujarat (work at this site commenced on 07-08-2007 and concluded on 31-03-2008). Similarly, for M/s. Sadbhav Engineering Ltd, Ahmedabad, M/s. Mahalaxmi had executed works as sub-contractor at Khadsalia Lignite Mines, Bhavnagar (work at this site commenced on 01-02-2006 and terminated on 31-03-2008) & at Bina Extension OCP of NCL (work at this site commenced on 29-11-2007 and concluded on 28-11-2010). The scope of the work of each agreement is highlighted herein below.

5.5(ii) Agreement dated 21-09-2006 for Barsinagar, Bikaner, Rajasthan Project: M/s. Mahalaxmi entered into agreement dated 21-09-2006 (RUD NO. 9) with M/s. Ranjit Construction Ltd, Ahmedabad for removal of overburden material in all kinds of strata, blasting, excavation, loading, transportation and dumping, spreading, dozing at specified places for the exposure of lignite at Barsinagar Lignite Mine Project, Rajasthan, at a consideration of Rs. 45.51 per cubic metre for 2,10,00,000 Cubic Metres to carry out the above work for the terms and conditions contained herein, which are recorded by executing this sub-contract agreement.

5.5(iii) Agreement dated 20-09-2007 for Rajpardi Project: M/s. Mahalaxmi entered into agreement dated 20-09-2007 (RUD NO. 10) with M/s. Ranjit Buildcon Ltd, Ahmedabad for hiring of heavy earthmoving machinery for overburden removal and lignite mining at Amod Lignite Mine, Rajpardi Project, District – Bharuch as a sub-contractor. M/s. Ranjit Buildcon Ltd was awarded this contract by M/s. Gujarat Mineral

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Development Corporation Ltd. The scope of the work is specified in the said contract as under: -

“Scope of the work shall be as per technical and special commercial conditions of the major contract.The Sub-Contractor shall be and hereby required to carry out above mentioned work under direct control and supervision of the Contractor at the place, time and in the manner defined in said major contract and subject to terms and conditions specifically laid down in this agreement.The Sub-Contractor shall be required to extract and dispatch 23.5 Lacs Metric Tonnes of Lignite of such quality and specifications as required under major contract, during the tenure of this agreement in accordance of instructions of the Contractor.”

5.5(iv) Agreement dated 09-06-2006 for works at GHCL Lignite Mine, Khadsaliya, Bhavnagar Project: M/s. Mahalaxmi entered into agreement dated 09-06-2006 (RUD NO. 11) with M/s. Sadbhav Engineering Ltd, Ahmedabad for hiring of heavy earth moving equipment for excavation and allied works at GHCL Lignite Mine, Khadsaliya, Bhavnagar. M/s. Sadbhav Engineering Ltd was awarded this contract by M/s. Gujarat Heavy Chemical Ltd. The scope of the work is specified in the said contract as under: -

“The scope of work of the contract for hiring of Heavy Earth Moving Machinery (HEMM) equipments for excavation includes:(a) Excavation at all depths from original ground level (OGL) to a depth of 73m, in

strata consisting of top soil, laterite and murrom, ferruginous sandstone, grey and variegated clay of compact and impervious nature.

(b) Dumping of over burden (O. B.) and leveling at dumping yard within the leasehold area up to 2.2. KM lead as shown by the Project authorities of GHCL and Project Manager (SEL).

(c) Cleaning of Lignite faces and exposure of lignite by excavator of 0.9 cubic meter bucket capacity only.

(d) Loading of lignite by excavator of 0.9 cubic meter bucket capacity, inside the pit, in tipper / dumper, transportation and unloading of Lignite at stock yard and leveling the same with Dozer / Grader.

(e) In-pit loading of lignite directly in transporter’s truck at stockyard located in the mining area.

(f) Any HEMM equipment of the deputed fleet that may be required by GHCL Ltd on hiring basis for allied works, shall have to be provided by your on chargeable basis as per mutually agreed terms, rates and conditions.

(g) You may encounter up to three lignite seams at places having carbonaceous shale in between. You are required to remove these carbonaceous shale partings in the best possible manner to avoid any dilution. While it may not be possible to separate the thin carbonaceous shale parting systematically lying in scattered manner, however, parting of +0.40 meter thickness shall have to be independently excavated and dumped separately. It must be ensured by you that carbonaceous shale is not mixed with lignite purposely during extraction and loading of Lignite.”

5.5(v) Agreement dated 12-10-2007 for Bina Extn OCP Project: M/s. Mahalaxmi entered into agreement dated 12-10-2007 (RUD NO. 12) with M/s. Sadbhav Engineering Ltd, Ahmedabad for removal of overburden of first dig (solid) by hiring of equipment such as excavators, tippers / dumper, drills, dozer, graders and water tanker for composite work consisting of blast hole drilling, blasting, excavation, loading, transportation of broken rock / soil/ earth, unloading/dumping, spreading, dozing, water sprinkling and grading etc. by mechanical means as per instruction of engineer incharge at specified places at Bina Extension OCP of NCL, as a sub-contractor. The scope of the work is specified in the said contract as under: -

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Approximate Quantity

Weighted Average Lead (KM)

Rate/BCM (Rs. & Paise) Amount (Rs.)

Figures

Words Figures Words

42.74 Million BCM

2.866 29.38 Rupees Twenty nine & paise thirty eight only

125,57,00,000 Rupees one hundred twenty five crore fifty seven lac only.

6.CLASSIFICATION OF SERVICES PROVIDED BY M/S. MAHALAXMI:

6.1 Intelligence gathered by DGCEI were found to be factual in as much as M/s. Mahalaxmi had not paid service tax in the years 2006-07 and 2007-08 for the work executed as sub-contractor. Moreover, in order to evade payment of service tax, M/s. Mahalaxmi had shown the description of service as “hiring of equipments” in the invoices issued in the years 2006-07 (Copies of invoices available in file mentioned at Sr. No. 7 of Annexure – A of Panchnama dated 23-01-2012) and 2007-08 (Copies of bills available in file mentioned at Sr. No. 8 of Annexure – A of Panchnama dated 23-01-2012) and 2008-09 (up to 10-07-2008) (Copies of invoices available in file mentioned at Sr. No. 9 of Annexure – A of Panchnama dated 23-01-2012). Value of income is arrived at by multiplying rate per hour with unit of working viz., hours or trips. That is M/s. Mahalaxmi claimed that they had given equipments on hiring. Service of hiring of equipment was brought under service tax net w.e.f. 16-05-2008, therefore they portrayed as if they provided hiring of equipment service in the years 2006-07 and 2007-08. To support their claim of hiring of equipments, they also fabricated separate agreement for this purpose to show their contention as genuine. Copies of fabricated agreements dated 21-09-2006 (RUD NO. 13) entered between M/s. Mahalaxmi Engineering Co, Bhuj and M/s. Ranjit Construction Co., Ahmedabad showing subject as Hiring of Hydraulic Excavators, Dozors, Dumpers, Rollers, etc equipment for mining work at Neyveli Lignite Project, Barsinagar, Rajasthan and another agreement dated 15-11-2007 (RUD NO. 14) entered between M/s. Mahalaxmi Engineering Co, Bhuj and M/s. Ranjit Construction Co., Ahmedabad showing subject as Hiring of Hydraulic Excavators, Dozors, Dumpers, Rollers, etc equipment for mining work at Amod Lignite Projects, Rajpardi were also retrieved from the office premises of M/s. Mahalaxmi during the course of search conducted on 23-01-2012. These above mentioned agreements were on the letter head of M/s. Ranjit Construction Co., Ahmedabad.

6.2 Nevertheless, from the documents seized under panchnama it was found that there was original agreement dated 20-09-2007 entered between M/s. Ranjit Buildcon Ltd, Ahmedabad and M/s. Mahalaxmi Engineering Co, Bhuj for hiring of heavy eathmoving machinery of over burden removal and lignite mining at Amod Lignite Mine, Rajpardi Project, District – Bharuch. This agreement was executed on the non-judicial stamp paper of value of Rs. 100/-.

6.3 Similarly, Shri Hiralal Dholu, Director of M/s. Mahalaxmi produced copy of original agreement dated 21-09-2006 entered between M/s. Ranjit Construction Co., Ahmedabad and M/s. Mahalaxmi Engineering Co., Bhuj for over burden removal in all kinds of strata, including its drilling, blasting, excavation, loading, transport and dumping, spreading, dozing at specified places for the exposure of lignite at Barsinagar Lignite Mine Project, Rajasthan. This agreement was executed on the non-judicial stamp paper of value of Rs. 100/-.

6.4 Further, Shri Hiralal Dholu, Director of M/s. Mahalaxmi produced copy of original agreement dated 09-06-2006 entered between M/s. Sadbhav Engineering Ltd, Ahmedabad and M/s. Mahalaxmi Engineering Co., Ahmedabad for excavation of all depths from original ground level to a depth of 73m, dumping of overburden and leveling

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at dumping yard, cleaning of lignite faces, loading of lignite by excavator of 0.9 cubic meter bucket capacity, inside the pit, in tipper / dumper, transportation and unloading of lignite from stockyard in transporters truck at stock yard located in the mining area. This agreement was executed on the non-judicial stamp paper of value of Rs. 100/-.

6.5 From the information furnished above, it was established that M/s. Mahalaxmi was engaged in providing services which were mainly relating to removal of overburden of first dig (solid) by hiring of equipment such as excavators, tippers / dumper, drills, dozer, graders and water tanker for composite work consisting of blast hole drilling, blasting, excavation, loading, transportation of broken rock / soil/ earth, unloading/dumping, spreading, dozing, water sprinkling and grading etc. by mechanical means as per instruction of engineer incharge at specified places. This fact was also admitted by Shri Hiralal Dholu, Director of the company in his statements dated 23-01-2012 and 13-03-2012. Thus, the classification of their activities under supply of tangible goods service is not tenable. M/s. Mahalaxmi indeed fabricated documents to escape service tax liability projecting as if they only hired mining equipments. However, their stand was disproved in investigation on the basis of material evidences gathered and the same was also accepted by them.

6.6 In order to determine classification of a taxable service, one has to take recourse to provisions of Section 65A of the Finance Act, 1994 wherein details for classification of taxable service is prescribed. This section reads as under: -

65A. Classification of taxable services – (1) For the purposes of this chapter, classification of taxable services shall be determined according to the terms of the sub-clauses (105) of section 65;(2) When for any reason, a taxable service is prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classificationshall be effected as follows :-

(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shallbe classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable;(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause whichoccurs first among the sub-clauses which equally merits consideration;]

6.7 In the instant case, services provided by M/s. Mahalaxmi was relating to removal of overburden by hiring of equipment such as excavators, tippers / dumper, drills, dozer, graders and water tanker for composite work consisting of blast hole drilling, blasting, excavation, loading, transportation of broken rock / soil/ earth, unloading/dumping, spreading, dozing, water sprinkling and grading etc. by mechanical means as per instruction of engineer incharge at specified places, as exemplified in their agreements entered for this purpose. Therefore the service provided was appropriately classifiable under “Site formation and clearance, excavation and earthmoving and demolition service”.

6.8(i) To understand the nature of services covered under Site formation and clearance, excavation and earthmoving and demolition service, it may be pertinent to refer to the definition given in the statute. In sub-clause (97a) of Section 65 of the Finance Act, it is defined as,

“Site formation and clearance, excavation and earthmoving and demolition” includes,-

(i) Drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or(ii) Soil stabilization; or

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(iii) Horizontal drilling for the passage of cables or drain pipes; or(iv) Land reclamation work; or(v) Contaminated top soil stripping work; or(vi) Demolition and wrecking of building, structure or road,

but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies.

6.8(ii) Further, Section 65(105)(zzza) of Finance Act, 1994 as amended “Taxable service” means any service provided or to be provided to any person, by any person, in relation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities.

6.8(iii)The CBEC vide M.F.(D.R.) letter F.No.B1/6/2005-TRU dated 27-07-2005 clarified that the definition of site formation and clearance, excavation and earthmoving and demolition is an inclusive definition and the activities specifically mentioned are indicative and not exhaustive. Prior to construction of buildings, factory or any civil structure, activity of mining or laying of cables or pipes, preparation services of site formation and clearance, excavation and earth moving or levelling are normally undertaken for a consideration who make the land suitable for such activities. Such services include blasting and a rock removal work, clearance of under growth, drilling and boring, overburden removel and other development and preparation services of mineral properties and sites, and other similar excavating and earthmoving services. Demolition of structures, buildings, street or highways is also undertaken for a consideration as a preparatory activity for subsequent construction activity or for clearing the site for any other purpose. All such activities fall under the scope of this service. However, site formation and clearance, excavation and earthmoving and demolition services when provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies are specifically excluded and not within the scope of this service. Notification No.17/2005-ST dated 07-06-2005 exempts this service provided in the course of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams major and minor ports.

6.8(iv) From the above, it is absolutely clear that the services provided by M/s. Mahalaxmi were in the nature of blasting and a rock removal work, clearance of under growth, drilling and boring, overburden removal and other development and preparation services of mineral properties and sites, and other similar excavating and earthmoving services, as explained in the above said Circular dated 27-07-2005.

6.8(v) Further, M/s. Mahalaxmi had initially claimed that they were in the business of hiring of equipment and to substantiate their claim, they had also concocted documents to this effect to escape service tax payment. After being proved from the material evidences by DGCEI that they were not in the business of hiring of equipments, they claimed classification under mining of mineral, oil or gas service and agreed to pay service tax from 01-06-2007. But the fact was that the services provided by M/s. Mahalaxmi mainly relating to excavation / drilling and removal of over burden and the same was appropriately classifiable under site formation and clearance, excavation and earthmoving and demolition service. The CBEC vide letter F. No. 232/2/2006-CX.4 dated 12-11-2007 clarified that, the mining sector (such as the coal mines, mining of ores, etc) mainly receive the following type of services, mostly on contract basis:-

(i) Excavation/ drilling and removal of the over burdens (i.e., stratum, layer of mud, boulders, etc, that needs to be removed during or prior to extraction of coal / minerals) – This type of activities are classifiable under Site Formation and Clearance, Excavation and Earthmoving and Demolition Services w.e.f. 16-06-2005.

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(ii) Coal cutting and mineral extraction and lifting them upto pit head – This type of activities are classifiable under “Mining of Minerals, Oil and Gas Service w.e.f. 01-06-2007.

(iii) Handling and transportation of coal / mineral from pit head to a specified location within the mine / factory or for transportation outside the mines. This types of activities are chargeable to service tax under “Cargo Handling Service w.e.f. 16-08-2002 or under Transport of Goods by Road Service w.e.f. 01-01-2005.

6.8(vi) From the above clarification dated 12-11-2007, it could be said that every activity carried out within the mining areas was not classifiable under mining of mineral, oil or gas service. Classification was to be determined based on the specific nature of service provided. It was amply clear from the agreements that M/s. Mahalaxmi has provided services relating to Excavation/ drilling and removal of the over burdens (i.e., stratum, layer of mud, boulders, etc, that needs to be removed during or prior to extraction of coal / minerals). Therefore this type of activities are appropriately classifiable under Site Formation and Clearance, Excavation and Earthmoving and Demolition Services.

6.9 From the information given above, it could be seen that M/s. Mahalaxmi had been providing services relating to Site Formation and Clearance, Excavation and Earthmoving and Demolition Services. Work carried out relating to site formation is taxable w.e.f. 16-06-2005. Therefore, service tax was recoverable from M/s. Mahalaxmi under site formation service from 01-10-2006 onwards. Information compiled from the copies of RA bills received from M/s. Mahalaxmi revealed that they had not paid service tax amounting to Rs. 6,44,48,537/- (which includes education cess of Rs. 12,56,531/- and higher & secondary cess of Rs. 3,65,457/-) on the value of services of Rs. 52,35,54,570/- received from their customers / employers from October, 2006 to July, 2008. The billwise information of value of services provided, amount of service tax, education cess and higher and secondary education cess payable is furnished in ANNEXURE – A enclosed to this notice.

7. LIABILITY TO PAY SERVICE TAX BY M/S. MAHALAXMI WHERE SERVICE PROVIDED AS SUB-CONTRACTOR:-

7.1 The contention of M/s. Mahalaxmi was examined to ascertain whether their stand of non-existance of liability to pay service tax on sub-contractor when main contractors are paying service tax on the entire value of contract.

7.2 For determining whether service provided was taxable or otherwise, one has to resort to the definition of the service provided under Section 65 of the Finance Act, 1994. As detailed above, M/s. Mahalaxmi provided site formation and clearance, excavation and earthmoving and demolition services to M/s. Ranjit Buildcon Ltd and M/s. Sadbhav Engineering Ltd. Therefore M/s. Mahalaxmi was liable to pay service tax. In Chapter V of the Finance Act, 1994, there is no category of service provider called sub-contractor.

7.3 Besides, the CBEC vide Circular No. 96/7/2007-ST dated 23-08 2007 has clarified the issue of taxability of service provided as sub-contractor as under: -999.03 / 23.08.07

A taxable service provider outsources a part of the work by engaging another service provider, generally known as sub-contractor. Service tax is paid by the service provider for the total work. In such cases, whether service tax is liable to be paid by the service provider known as sub-contractor who

A sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the sub-contractor.

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undertakes only part of the whole work.

Services provided by sub-contractors are in the nature of input services. Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services. The fact that a given taxable service is intended for use as an input service by another service provider does not alter the taxability of the service provided.

7.4 In the above clarification, it was amply clarified that taxability of service provided by a service provider was to be determined on the basis of nature of service provided. The fact that a given taxable service is intended for use as an input service by another service provider does not alter the taxability of the service provided. Therefore the contention of M/s. Mahalaxmi was not tenable.

8. RECOVERY OF SERVICE TAX NOT PAID FROM M/S. MAHALAXMI:

8.1 Shri Hiralal Dholu, Director of M/s. Mahalaxmi in his statement dated 23-01-2012 stated that the reason for not paying service tax was due to the fact that they work as sub-contractor to their main contractors, who were paying service tax on the entire amount of contract. M/s. Mahalaxmi’s contention was baseless and in violation of provisions of Section 65 of the Finance Act, 1994. Every taxable service provider was liable to pay service tax. There is no clause of service provider called sub-contractor exists in the statute. This position is amply clarified vide the CBEC’s Circular No. 96/7/2007-ST dated 23-08 2007.

8.2 Scrutiny of documents revealed that M/s. Mahalaxmi had not paid service tax amounting to Rs. 6,44,48,537/- (which includes education cess of Rs. 12,56,531/- and higher & secondary cess of Rs. 3,65,457/-) (Rupees six crore forty four lakh forty eight thousand five hundred thirty seven only) during the period from October, 2006 to July, 2008 under site formation and clearance, excavation and earthmoving and demolition services. Billwise details of service provided and service tax payable is furnished in ANNEXURE-A enclosed to this notice. 8.3 However, on being pointed out, though they admitted the short payment of service tax, they made payment of service tax of Rs. 1,00,00,000/ (Rupees one crore only) vide e-payment challans as given below:

Challan No. Date Amount of Service Tax(in Rs.)Service Tax Edu. Cess HSE Cess Total

7 30-01-2012 24,27,184 48,544 24,272 25,00,00071 17-02-2012 24,27,184 48,544 24,272 25,00,00016 03-03-2012 24,27,184 48,544 24,272 25,00,00038 20-03-2012 24,27,184 48,544 24,272 25,00,000

TOTAL 97,08,736 1,94,176 97,088 1,00,00,000

8.4 Further, they had not paid any interest on the delayed payment of service tax. Therefore, the remaining amount of service tax was required to be recovered from M/s. Mahalaxmi along with interest.

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9. CONTRAVENTION OF PROVISIONS OF THE FINANCE ACT, 1994:

9.1 Section 65A of the Finance Act, 1994 lays down the procedure for the appropriate classification of taxable services. In the instant case, M/s. Mahalaxmi wrongly claimed classification of their services as hiring of equipment by concocting document to this effect to hide the site formation and clearance, excavation and earthmoving and demolition services provided by them. Thus, they had contravened provisions of this section;

9.2 Section 68 of the Finance Act, 1994 provides that every person providing taxable service to any person shall pay service tax at the specified rates and in such manner and within such period as may be prescribed. Further, Rule 6 of the Service Tax Rules 1994 stipulates that service tax shall be paid to the credit of the Central Government, by the 5th of the month immediately following the calendar month, in which the payments are received, towards the value of taxable services. In the instant case, M/s. Mahalaxmi did not pay service tax payable / short paid during the period from October, 2006 to July, 2008;

9.3 Section 69 of the Finance Act, 1994 read with Rule – 4 of the Service Tax Rules, 1994 provides that every person liable to pay service tax should make an application within a period of thirty days from the date on which the service tax under Section 66 of the Finance Act, 1994 is levied. But M/s. Mahalaxmi had not applied for registration under site formation and clearance, excavation and earthmoving and demolition service in accordance with this section.

9.4 Section 70 of the Finance Act, 1994, provides that every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed. Rule 7 of the Service Tax Rules, 1994, prescribes that every assessee shall submit a half-yearly return in Form ST-3 or ST-3A as the case may be, alongwith a copy of the Form TR-6, in triplicate for the months covered in the half-yearly returns. Further sub-rule [2] thereto also provides that every assessee shall submit the half yearly return by the 25th of the month following the particular half-year. M/s. Mahalaxmi had provided taxable services, however they did not file ST-3 returns during the period of 2006-07 and 2007-08 and thus it can be said that they had deliberately failed to file ST-3 returns in order to suppress the facts regarding taxable services provided by them with the intention of evading the payment of Service Tax.

10. In view of above, it appeared that M/s. Mahalaxmi had not paid service tax by way of willful mis-statement, suppression of facts and in contravention of provisions of the Finance Act, 1994 and rules made there under relating to levy and collection of service tax with an 'intent' to evade the payment of service tax. M/s. Mahalaxmi intentionally did not obtain service tax registration and file ST-3 returns declaring the information relating to services provided and service tax paid by them. Therefore, it appeared that the proviso to sub-section [1] of Section 73 of the Finance Act, 1994 was applicable to invoke the extended period of five years for the recovery of service tax not paid by them.

11. M/s. Mahalaxmi had not paid the service tax on the gross amount of taxable services provided by them. It therefore, appeared that they had rendered themselves liable to penal action under Section 76 of the Finance Act, 1994. Further, it appeared that M/s. Mahalaxmi had mis-declared/ suppressed/concealed the value of taxable service with an intent to evade service tax. They had not paid service tax by way of willful mis-statement, suppression of facts and contravention of provisions of Finance Act, 1994 and rules made thereunder relating to levy and collection of service tax with an 'intent' to evade the payment of service tax. It therefore, appeared that M/s. Mahalaxmi were liable to penal action under Section 78 of the Finance Act, 1994.

15


12. Further they were also liable for penalty under Section 77 of the Finance Act, 1994 for not obtaining service tax registration within the stipulated time, for mis-declaration of services provided and for not filing of ST-3 returns with Service Tax department for the year 2006-07 and 2007-08.

13. Therefore, a show cause notice bearing F.No.DGCEI/AZU/36-15/2011-12 dated 18.04.2012 was issued to M/s. Mahalaxmi Infracontract Pvt. Ltd. Ahmedabad by the Additional Director General, DGCEI, AZU, Ahmedabad to show cause to the Commissioner of Service Tax, Ahmedabad as to why:-

(i) Service tax amounting to Rs. 6,44,48,537/- (which includes education cess of Rs. 12,56,531/- and higher & secondary cess of Rs. 3,65,457/-) (Rupees six crore forty four lakh forty eight thousand five hundred thirty seven only), which was not paid by them under “Site Formation And Clearance, Excavation And Earthmoving And Demolition Service”, should not be demanded and recovered from them under Section 73 of the Finance Act, 1994 by invoking extended period of five years as per proviso to sub-section (1) of said Section;

(ii) Service tax of ` 1,00,00,000/- (which includes education cess of Rs. 1,94,176/- and higher & secondary education cess of Rs. 97,088/-) (Rupees one crore only) paid by them during the course of investigation, as detailed in para 8.3 of this notice, should not be appropriated against their liability as mentioned at (i) above;

(iii) Interest at appropriate rate should not be demanded and recovered from them on the amount of service tax not paid as mentioned at (i) above, under the provisions of Section 75 of the Finance Act, 1994;

(iv) Penalty under the provisions of Section 76 of the Finance Act, 1994, as amended, should not be imposed upon them for failure to pay Service Tax, as mentioned hereinabove;

(v) Penalty under the provisions of Section 77 of the Finance Act, 1994, as amended, should not be imposed upon them for contravention of provisions of the Finance Act, 1994, as explained hereinabove;

(vi) Penalty under Section 78 of the Finance Act, 1994, as amended, should not be imposed upon them for suppressing the full value of taxable services and material facts from the department resulting into non-payment/late payment of Service Tax as explained herein above.

DEFENCE REPLY :

14. M/s Mahalaxmi vide letter dated 15.01.2013 submitted their reply to the show cause notice.

15. They denied all the charges leveled against them and protests the same, inter alia, on the following grounds, which are without prejudice to each other and are in addition to the grounds those may be taken up at the time of hearing.

Activities were classifiable under “Mining of Minerals, oil Gas Services:15.1 It has been proposed to recover service tax of Rs. 6,44,48,537 for the period

October 2006 to July 2008 under the category of “Site Formation and clearance, Excavation and Earth Moving and demolition Services”, which was introduced with effect from 16th May, 2006.

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15.2 Definition of “Site Formation Services” as defined under Section 65(97)(a) of the Finance Act, 1994 (Act) reads as under:

“(97a) “Site formation and clearance, excavation and earthmoving and demolition” includes;-(i) drilling, boring and core extraction services for construction,

geophyusical, geological or similar purposes or (ii) soil stabilization or(iii) horizontal drilling for the passage or cables or drain pipes (iv) land reclamation work (v) contaminated top soil stripping work (vi) demolition and wrecking of building, structure or read but does not include such service provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources of water bodies

15.3 They drew attention to Circular No. B1/6/2005-TRU, dated 27th July, 2005 and Circular No. 231/2/2006-CX-4, dated 12th November, 2007 wherein it has been specifically clarified that activities of Site Formation, etc., carried out prior to beginning of construction to make the land suitable only are taxable under the category of Site Formation Services.It was also clarified that excavation, drilling and removal over-burden, coal cutting, mining, extraction and lifting upto the pit-head are essentially integral part of mining operations, which is taxable from 1st June, 2007 only.They also drew attention to minister’s letter DOF NO. 334/1/2007 TRU Dt. 28.02.2007, wherein it has been clarified that, exploration and Mining of Minerals, Oil or Gas are comprehensively brought under Service Tax in mining services.

15.4 They drew attention to the provisions of Section 65A of the Act, which was reproduced hereunder:65A. 1[Classification of taxable services](1) For the purposes of this Chapter, classification of taxable services shall be determined according to the terms of the sub-clauses of clause (105) of section 65.(2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows:—

(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;

(b) 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, insofar as this criterion is applicable;

(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration.2[(3) The provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint.]

15.5 Interpretation of above Section read with above referred circulars clearly establishes that activities carried out by them were in the nature of Mining Services and not Site Formation Services.

15.6 They relied on the following judgments in which it has been decided that extraction, removal of over-burden, etc., are in the nature of mining services.

(1) M. Ramkrishna Reddy Vs. CCE & Custom (2009) 18 STT 465 (Bang. CESTAT, Tirupathy)

(2) National Mining Co. Ltd. Vs. CCE, Dibrugarh, (2008) 12 STT 447 (CESTAT Kolkata) (2008) 10 STR 136

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(CESTAT) Kolkata

15.7 The facts of the case were identical to that of the cases quoted herein above and, therefore, demand raised under the “Site Formation Service” cannot be sustained.

15.8 Apart from the above, they drew attention that contract with the main contractor was continued even after completion of the disputed period and, therefore, for the same activities under the same contract, the Assessee has paid service tax under Mining Services and ST-3 Returns are also filed accordingly and are accepted by the Department without disputing the classification.

15.9 Thus, in view of the above activities were classifiable under Mining Services and not under Site Formation Services.

15.10 It is settled law that particular activities made taxable from a particular date cannot be taxed prior to that date. They took support of following judgments:

(1) Gujarat Chem Port. Terminal Co. Ltd. Vs. CCE & C, Vadodara-II,2008 (9) STR 386 (Tri. Ahmedabad)

(2) Geo Foundation & Structure (P) Ltd. Vs. CCE & CC Appeal No. ST/111/2007 Dt. 02.02.09 (Bang. CESTAT)

15.11 In the facts and circumstances of the case and in law they were not at all liable to pay service tax under the Site Formation Service

SAME ACTIVITY CAN NOT BE TAXED TWICE:

15.12 The search party had also observed and accepted that they were given back to back contract by the main contractors.

15.13 Thus entire activities were carried out by them and has not received any amount from Mining Company directly.

15.14 It has also been beyond doubt established that the main contractors has paid service tax in full on entire contract value.

15.15 They were furnished by Ranjit Bunildcon Ltd. a copy of letter issued Joint Commissioner of Service Tax, Ahmedabad guiding that sub contractors are not liable to service tax, if entire amount of service tax was paid by Ranjit Bunildcon Ltd. the main contractor.

15.16 In addition to above referred letter issued by Joint Commissioner of Service Tax, Ahmedabad they also took support of circular No. B/43/4/97 TRU dt.02.07.1997 according to which sub contractors were not liable to service tax, if entire amount of service tax is paid by the main contractor.

15.17 Relying upon the said circular, the Honourable CESTAT in the case of Koch-Glitsch India Ltd, has decided that sub contractors are not liable to service tax as the same activity can not be taxed twice.

15.18 Even assuming without admitting that they were liable to pay service tax then also liability shall arise only after 23.08.2007 the date of circular No. 96/7/2007 dt. 23.08.2007 in which it has been clarified that sub contractors are also liable to service tax the liability from 23.08.2007 to 31.07.2008 may be worked out at Rs. 2,96,71,134/- out of which Rs. 1,00,00,000/- has already been paid.

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15.19 However, since the entire amount of service tax is paid by the main contractors, they be exempted from making of payment of service tax from 23.08.2007 to 31.07.2008.

15.20 If it is of the view that they were liable to service tax then also it will be a revenue neutral and therefore there is no revenue loss and therefore a specific direction be given allowing the main contractors a Cenvat Credit of service tax paid by them.

Extended period cannot be invoked:

15.21 It has been proposed to recover the service tax under Site Formation Service by invoking the provisions of Extended Period on the ground that they had suppressed the facts from the Department.

15.22 Section 73 of the Finance Act, 1994 provides for recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. According to the provisions of section 73(1) of the Act where any service tax has not been levied or paid or has been sort levied or short paid or erroneously refunded the Central Excise Officer may within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short levied or short paid or the person to whom such tax refund has erroneously been made, requiring to show cause why he should not pay the amount specified in the notice. The limitation of period can be invoked up to five years from the relevant date by the department by under of the proviso to section 73(1) of the Act where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of –* fraud ; or * collusion; or * willful misstatement ; or * suppression of facts, or

* contravention of any of the provisions of the service tax or of the rules made there under with intent to evade payment of service tax.

by the person chargeable with service tax or his agent.

Extended period of limitation would be applicable only in the above circumstances. 15.23 Facts were known to the Department:

(a) They, as stated herein above, under the guidelines issued by the Joint Commissioner of Service Tax, Ahmedabad, vide letter No STC/4-115/CLF/2006 dated 31.01.2006 did not pay service tax as a sub-contractor. The Department was fully aware about the activities being carried out by them, and therefore, there was no suppression of facts and that too with an intent to evade payment of service tax.

(b) It was submitted that there was no fact which was not known to the Department. Departmental audit was also completed for the period 2006-2007 to 2008-09 and audit report was also served to them on which all audit paras were settled. Further, they did not willfully suppress the fact and there was no failure to disclose fully or truly the material fact. The Department never asked for any information which they failed to disclose. They had always cooperated the Department in their proceedings and has always provided the details asked for by the Department and never suppressed any facts from the Department. It was submitted that the Hon’ble Supreme Court in the case of Padmini Products Limited v CCE 1989 (43) ELT 195 (SC) held as follows in this regard:(a) 8. Shri V. Lashmikumaran, learned Counsel for the Noticee drew our

attention to the observations of this Court in Collector of Central

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Excise, Hyderabad v. M/s. Chemphar Drugs and Liniments, Hyderabad – 1989(40)E.L.T. 276 (S.C)- 1989 (2) SCC 127 where at page 131 of the report, this Court observed that in order to sustain an order of the Tribunal beyond a period of six months and upto a period of 5 years in view of the proviso to sub-section (1) of Section 11-A of the Act, it had to be established that the duty of excise had not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or willful mis-statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. It was observed by this Court that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability beyond the period of six months had to be established. Whether in a particular set of facts and circumstances there was any fraud or collusion or willful mis-statement of suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case”

(b) They further drew support from the judgment of the Hon’ble Supreme Court in the case of CCE V/s Chemphar Drugs and Liniments 1989 (40) ELT 276 (SC) 1989, wherein the Hon’ble Supreme Court held as follows:-

9. Aggrieved thereby, the Revenue has come up in appeal to this Court. In our opinion, the order of the Tribunal must be sustained. In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to sub-section (1) of Section 11-A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by the reasons of either fraud or collusion or willful misstatement or suppression of facts or contravention of any provision of the Act or rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before (six beyond) the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or willful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. The Tribunal came to the conclusion that the facts referred to hereinbefore does not warrant any inference of fraud. The assessee declared the goods on the basis of their belief of interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of the exempted goods which they manufactured at the relevant time. The Tribunal found that explanation was plausible, and also noted that the department had full knowledge of the facts about manufacture of all the goods manufactured by the respondent when the declaration was filed by the respondent. The respondent did not include the value of the product other than those falling under T.I. 14-E manufactured by the respondent and this was in the knowledge, according to the Tribunal of the authorities. These findings of the Tribunal have not been

20


challenged before us or before the Tribunal itself as being based on no evidence.

They submitted that the charges leveled on them were liable to be dropped on this ground of limitation alone.

15.24) Noticee was under bona fide belief about non-taxability:(a) They were under bona fide belief that activities carried out by it were not

taxable under Site Formation Services and was not liable to pay service tax also as a sub-contractor. The bona fides of the Noticee was on the basis of facts and circumstances mentioned herein below. They took support of following case:(1) Catalyst Capital Service (P) Ltd. Vs. CCE

(2005) 1 STT 241 (Mumbai CESTAT)

(2) Marketforce Chennai (P) Ltd. Vs. CCE (2007) 8 STR 175 (Tri. Chennai)

(b) On the same set of facts in the following cases it has been decided that such activities were not taxable under Site Formation Services:(1) M. Ramkrishna Reddy Vs. CCE & Custom

(2009) 18 STT 465 (Bang. CESTAT, Tiraputhy)(2) National Mining Co. Ltd. Vs. CCE, Dibragarh,

(2008) 12 STT 447 (CESTAT Kolkata)

(c) They took support of the case law wherein it has been decided that when there is a Tribunal judgment in favour of the Assessee and it did not pay service tax, then suppression cannot be alleged and Extended Period cannot be invoked.Diamond Cement Ltd V/s CCE, Bhopal 2012 (283) ELT 226 (Tri-Del);

(d) They took support of following decisions:

Decision Ratio of judgment(a) (1) M. Ramkrishna Reddy Vs. CCE & Custom, Tirapathy (2009) 18 STT 465 (Bang. CESTAT)(2) National Mining Co. Ltd. Vs. CCE, Dibrugarh, (2008) 12 STT 447 (CESTAT Kolkata)

Activities are not site formation. But fall under mining services.

(b)(1) Koch – Glitsch India Ltd. Vs. CCE & Custom, Vadodara-1, 2009 (13) STR 636 (Tri. Ahmedabad (2) Urvi Construction Vs. CST Ahmedabad2010 (17) STR 302 (Tri, Ahmedabad)

Sub-contractors are not liable to service tax.

(c)Circular No. B/43/4/97 TRU Dt. 02.07.1997 Sub-contractors are not liable to service tax.

15.25 (a) It has been alleged that they executed an agreement with the main contractor and raised the bills under wrong description.

(b) As stated earlier and also confirmed by the Department in Show Cause Notice that they were given back-to-back contract by the main contractor. The entire work was carried out by them and, therefore, the agreement of sub-contract was executed on the same lines of agreement with the main contractor and the mining company.

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(c) The Department has never disputed the activities and the nature of work carried out by them. And, looking to the activities, the same were not taxable under Site Formation Services, and therefore, such allegation that they had not paid service tax by giving wrong description with an intent to evade payment of service tax is not tenable.

No Penalty can be imposed:

15.26 It has been proposed to charge interest u/s. 75 and to impose penalties u/s. 76, 77 and 78 of the Act.

15.27 The penal provisions are only a tool to safeguard against contravention of the rules. They submitted that they had always been under the bonafide belief that credit taken by them was legally available to it as mentioned in Show Cause Notice. Such bonafide belief was based on the grounds given above. There was no intention to evade payment of service tax as mentioned in the ground above. Therefore, no penalty was imposable in the present case.

15.28 In support of the above view, reliance was placed on the decision of the Hon’ble Supreme Court in the case of Hindustan Steel Ltd., v. The State of Orissa reported in AIR 1970 (SC) 252. The above decision of the Apex Court, was followed by the Tribunal in the case of Kellner Pharmaceuticals Ltd., Vs. CCE, reported in 1985 (20) ELT 80, and it was held that proceedings under Rule 173Q are quasi-criminal in nature and as there was no intention on the part of the Noticee to evade payment of duty the imposition of penalty cannot be justified. The ratio of these decisions squarely applies in all force to the present case. In the present case, there was neither any malafide intention nor any intention to evade payment of tax. In view of the foregoing, no penalty is imposable.

15.29 It was submitted that penalty under section 78 of the Act can be imposed only for willful suppression with an intent to evade payment of service tax. They submitted that it has not suppressed any value/fact and that too with an intention to evade payment of service tax. Therefore, penalty under Section 78 of the Act cannot be imposed in the present case. Reliance was placed on the judgment of the Hon’ble Supreme Court in the case of Akbar Badruddin Jiwani V/s Collector of Customs, 1990 (047) ELT 061 SC, wherein the Hon’ble Supreme Court has held follows:

57. Before we conclude it is relevant to mention in this connection that even if it is taken for arguments sake that the imported article is marble falling within Entry 62 of Appendix 2, the burden lies on the Customs Department to show that the Noticee has acted dishonestly or contumaciously or with the deliberated or distinct object of breaching the law.

[Emphasis supplied] 15.30 There is no mens rea or contumacious conduct on the part of the assessee to evade

service tax. The non payment of service tax and failure to follow the other formalities occurred not due to assessee’s intention to evade the payment of tax.

15.31 They submitted that even if any contravention of provision is alleged it was solely on account of their bonafide belief as discussed above. Such bonafide belief was based on the reasons stated above. The contravention, if any, was not with the intention to willfully evade payment of service tax. Reliance is placed on the judgment of Hon’ble Supreme Court in the case of Pushpam Pharmaceuticals Company V. CCE 1995 (78) ELT 401(SC) wherein it was held as follows:-

4. Section 11A empowers the Department to re-open proceedings if the levy has been short levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the

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authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppressions of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different then what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or willful default. In fact, it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.

15.32 Similar was the view of the Hon’ble Supreme Court in the case of CCE Vs. Chemphar Drugs and Liniments 1989 (4) ELT 276 (SC), (Supra).

15.33 It is settled law that penalties are not automatic. CST Vs. Motor World (2012) 36 STT 48 (Karnataka. H. C.)

It is also settled law that both the penalties u/s. 76 and 78 cannot be imposed for single fault. They took support of following judgment:

CST Vs. Motor World (2012) 36 STT 48 (Karnataka. H. C.)In the said decision it has been concluded as under:(1) The imposition of penalty under the Act is not automatic. The ingredients mentioned, in the section should exist. In respect of section 76,77 and 78 of the Act, not only the ingredients of those sections should exist, but also there should be absence of reasonable cause for the said failure.(2) Section 76 and 78 are mutually exclusive. it penalty is payable under section 78, section 76 is not attracted. Therefore,. no penalty can be imposed for the same failure under both the provisions.(3) Even if the ingredients stipulated in section 76 and 78 of the Act are established, if the assessee shows reasonable cause fore such failure, then the authority has not power to impose penalty in view of section 80 of the Act.

15.34 Further, without prejudice to above, it is a settled principle of law that if a dispute

is arising out of interpretation of the provisions of statute or exemption notification, no penalty can be levied. If at all it is held that the service tax is payable, then also it be said that it is dispute arising out of interpretation of the provisions of the law and not because of any intentional avoidance of tax. They placed reliance on the following case laws in this regard:(a) Bharat Wagon & Engg. Co. Ltd. Vs. Commissioner of C. Ex. Patna,

(146) ELT 118 (Tri. Kolkata)(b) Goenka Woollen Mills Ltd. V/s. Commissioner of C. Ex. Shillong

2001 (135) ELT 873 (Tri-Kolakata)(c) Bhilwara Spinners Ltd. V/s. Commissioner of C. Ex. Jaipur,

2001 (129) ELT 458 (Tri. Del)

15.35 Noticee was under Bonafide Belief about non taxability:

They were under bona fide belief that activities carried out by them were not taxable under Site Formation Services and was not liable to pay service tax also as a sub-contractor. The bona fides of the Noticee was on the basis of facts and circumstances mentioned herein below. They took support of following case:

(1) Catalyst Capital Service (P) Ltd. Vs. CCE

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(2005) 1 STT 241 (Mumbai CESTAT)

(2) Marketforce Chennai (P) Ltd. Vs. CCE (2007) 8 STR 175 (Tri. Chennai)

15.36 Benefit of Section 80 of the Act.

Looking to the facts and circumstance of the case, they had reasonable cause for not making payment of Service tax and therefore taking in to the consideration a ratio of judgement rendered by Honourable H. C. in the case of:

CST Vs. Motor world (2012) 36 STT 48 (Kar) H.C.

provisions of section 80 of the Act are squarely applicable to their case. And no penalty can be imposed on them.

In the case of CCE Calcutta, Vs. Calcutta Spinning Mills it has been decided that when goods are classifiable under two headings, benefit of section 80 of the Act may be given.

CCE Calcutta, Vs. Calcutta Spinning Mills 2008 (229) ELT 161 15.37. Interest u/s. 75:

For the reasons discussed hereinabove, when service tax is not at all payable, charging of interest u/s. 75 does not arise.

Under the facts and circumstances of the case, they prayed that:

(a) all the charges leveled on them may be dropped;(b) if at all a different view is taken, liability of service tax may be restricted to Rs.

2,96,71,134/- (23.08.2007 to 31.07.2008) subject to availability of Cenvat Credit to main contractors;

(c) interest u/s. 75 and penalties proposed to be imposed u/s. 76, 77 & 78 of the Act may please be dropped.

16. M/s Mahalaxmi vide their further letter dated 17.01.2013 submitted that, in their reply dated 15.01.2013 at Para 5.18 on page No.13, they had mentioned the figure of Rs.2,96,71,134/-. However, on detailed working it was noticed that correct figures was Rs.2,72,68,592/-. They enclosed a detailed worksheet.

17. They requested to consider the new figure of Rs.2,72,68,592/-. Also as Para (b) of prayer the new figure of Rs.2,72,68,592/- be considered.

PERSONAL HEARING

18. Personal hearing in the case was fixed on 07.12.2012, 21.12.2012, 08.01.13. Nobody appeared for hearing on 07.12.2012 and 21.12.2012. For the hearing fixed for 08.01.13, they requested for adjournment vide letter dated 07.01.13. Another date was fixed for 15.01.13. They submitted written submission on 15.01.2013. Another date was fixed for 24.01.13. Shri Dinesh Bhavsar appeared on behalf of M/s Mahalaxmi and reiterated submissions made in their reply dated 15.01.13 and also gave case laws and boards clarification dated 23.08.07 in their favour. He also gave ST-3 returns to show that they were registered under Mining Services. They had nothing more to add.

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18.1 M/s Mahalaxmi vide letter dated 12.02.13 furnished ST-3 returns of Ranjit Buildcon Ltd for the period 2006-07 to 2008-09 in justification of service tax amount in full paid by them in respect of work carried out by M/s Mahalaxmi as a sub contractor.

DISCUSSION AND FINDINGS

19. I have carefully gone through the entire case records, SCN issued, defence put forth in writing as well as contentions made during the course of personal hearing. I find that the issues to be decided in the present case are –

i) whether the services provided by M/s Mahalaxmi are classifiable under the category of ‘Site formation and clearance, excavation and earthmoving and demolition service’ defined in sub-clause (97a) of Section 65 of the Finance Act, and taxable under Section 65(105)(zzza) of Finance Act, 1994?

ii) whether M/s Mahalaxmi is liable to pay service tax under ‘Site formation and clearance, excavation and earthmoving and demolition service’, when they were acting as sub-contractors of the main contractors, M/s. Ranjit Construction Ltd now known as M/s. Ranjit Buildcon Ltd and M/s. Sadbhav Engineering Ltd.

20. I have carefully gone through the contents of the certificates issued by the main contractors M/s. Ranjit Construction Ltd now known as M/s. Ranjit Buildcon Ltd and M/s. Sadbhav Engineering Ltd. which are briefed at para 5.4(i) of the show cause notice and I find that the work executed by M/s Mahalaxmi is removal of over burden material in all kinds of strata including its drilling, blasting, excavation, loading, transportation and dumping, spreading, dozing at specified places for the exposure of lignite. I also find that in these certificates, quantity of overburden removed and value of service in rupees is detailed. In none of the certificates, number of machineries deployed and number of working hours of such machines is mentioned. This conclusively proves that M/s Mahalaxmi provided services relating to overburden removal in the mining areas and the payments received by them under the said contracts was for the afore said work done of overburden removal. Therefore, their contention of providing of services of merely hiring of equipments is baseless and incorrect.

20.1. I observe that as per the provisions of Section 65 (97a ) of the Finance Act, 1994, as amended from time to time, the term “Site formation and clearance, excavation and earthmoving and demolition” were brought into the net of Service Tax with effect from 16.06.2005 and the definition thereof includes:-

(i) drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or

(ii) soil stabilization; or(iii) horizontal drilling for the passage of cables or drain pipes; or(iv) land reclamation work; or(v) contaminated top soil stripping work; or(vi) demolition and wrecking of building, structure or road.

but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies.”

20.2. On plain reading of the above definition, I find that “Removal of Overburden” is not specifically included in the above definition. However, the above definition is an inclusive definition and the activities specifically mentioned are indicative and not exhaustive.

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20.3. I find it relevant to reproduce para 6.2 of the CBEC Instruction letter F.No. B1/6/2005-TRU, dated 27-7-2005 which pertains to “Site formation and clearance, excavation and earthmoving and demolition services”:

“The definition of site formation and clearance, excavation and earth-moving and demolition service is an inclusive definition and the activities specifically mentioned are indicative and not exhaustive. Prior to construction of buildings, factory or any civil structure, activity of mining or laying of cables or pipes, preparation services of site formation and clearance, excavation and earth moving or levelling are normally undertaken for a consideration to make the land suitable for such activities. Such services include blasting and rock removal work, clearance of underground, drilling and boring, overburden removal and other development and preparation services of mineral properties and site, and other similar excavating and earth-moving services. Demolition of structures, buildings, streets or highways is also undertaken for a consideration as a preparatory activity for subsequent construction activity or for clearing the site for any other purpose. All such activities fall within the scope of this service”.

20.4. I further find it relevant to reproduce para 1 and 3 of the CBEC Instruction letter F.No. 232/2/2006-CX.4, dated 12-11-2007.

“Applicability of service tax on activities undertaken at mines prior to enactment of the Finance Bill, 2007

It may be recalled that vide appropriate entry in the Finance Act, 2007, “service provided by any person to any other person in relation to mining of minerals, oil or gas” has been comprehensively brought under the ambit of service tax with effect from 01.6.2007.”

1. “Excavation/drilling and removal of the overburdens: These activities are essentially in the nature of site formation, clearance, excavation and earth-moving. As clarified earlier vide circular B1/6/2005-TRU, dated 27-7-2005 (para 6.2), the definition of site formation and clearance, excavation and earth-moving and demolition service is an inclusive definition and activities specifically mentioned are indicative and not exhaustive. Prior to construction of buildings, factory or any civil structure, activity of mining or clearance, excavation and earth moving or levelling are normally undertaken for a consideration to make the land suitable for such activities. Such services include blasting and rock removal work, clearance of underground, drilling and boring, overburden removal and other development and preparation services of mineral properties and site, and other similar excavating and earth-moving services. Hence, these activities are taxable under the category of site formation and clearance, excavation and earth-moving and demolition service w.e.f. 16-6-2005”.

20.5. On bare perusal of the above clarifications issued by the CBEC, the matter stands amply clarified that the activity of “Overburden Removal” is covered under the service category of “site formation and clearance, excavation and earth-moving and demolition service” and is taxable w.e.f. 16-6-2005.

20.6. M/s Mahalaxmi has relied on the judgment in the case of M. RAMAKRISHNA REDDY vs. COMMR. OF C. EX. & CUS., TIRUPATHI reported at (2009) 18 STT 465 (Bang. CESTAT, Tiraputhy)/ 2009 (13) S.T.R. 661 (Tri. - Bang.) in this regard. I find that the facts of the cited case are different from the facts of the case before me, as in the cited case the service provider was awarded with the work of mining Baryte ore by Andhra Pradesh Mineral Development Corporation Ltd and while providing the mining services he was doing incidental work of overburden removal. CESTAT held that the services rendered amounted to mining services taxable w.e.f 1.6.2007 and as the contract was a comprehensive one for mining, it could not be

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vivisected for levying service tax on that portion of the activity relating to “site formation”. In the case before me the said service provider, M/s Mahalaxmi is not providing mining service under a composite contract at the Lignite mines. They have been specifically awarded the contract for execution of overburden removal and have been paid for the said work. I find that in the case before me, the work and the amount to be received for the accomplishment of the said work are clearly known to both the parties right from the date of Tender and the agreement. There is no question of vivisecting of the contract in this case. Hence, the ratio of the cited case law can not be applied in the case before me. I find that the said service provider has also relied on judgment in the case of National Mining Co. Ltd. Vs. CCE, Dibrugarh, (2008) 12 STT 447 (CESTAT Kolkata) (2008) 10 STR 136 (CESTAT) Kolkata. I find that in the said case, the payment of service tax was not in dispute which had been paid by the appellants, the Hon’ble CESTAT has decided on the invocation of Section 80 of the Act. Hence, the ratio of the cited case law cannot be applied in the case before me.

20.7. As regards, the Rule of classification of service, I observe that the taxability of a service does not at all depend on the utility and purpose of the final service for which it is done. A service is taxable depending on its very nature and its being covered under the definitions of taxable service given under Section 65 of the Finance Act,1994.

20.8. The service provider’s reliance on various case laws to contend that it is also a well settled principle of law that when no tax is payable under a specific entry, revenue can not discard the specific entry and bring the services under a general entry is also misplaced as in the case before me the service of overburden removal is appropriately classified under the category of “Site formation and clearance, excavation and earthmoving and demolition services” as discussed in the foregoing paras. The question of taxing the same activity twice just doesnot arises. The ratio of the cited judgments is therefore not applicable in the case before me.

20.9. As regards, service provider’s reliance on various case laws to submit that the Board’s circulars are binding on the department, I find that the said argument holds no ground, as it is amply clarified by the Board that the service of overburden removal is appropriately classified under the category of “Site formation and clearance, excavation and earthmoving and demolition services” w.e.f 16.6.2005 as discussed in the foregoing paras, which is contrary to the contention of the said service provider for classification under ‘mining services’ taxable w.e.f 1.6.2007. The ratio of the cited judgments is not applicable in the case before me as my findings are consistent with the circulars issued by the CBEC.

20.10. The said service provider, M/s Mahalaxmi has also placed reliance on various case laws to support their contention. However, the case laws relied upon by the said service provider are distinguishable from the one before me as discussed in the foregoing paras. Therefore, the ratio of the said cases is not found applicable in the present case. Hence, the question of breach of judicial discipline would not arise.

20.11. Thus, from the foregoing discussion, I conclude that the services as discussed above provided by M/s Mahalaxmi would appropriately fall under the service category of “Site formation and clearance, excavation and earth moving and demolition services” which is taxable w.e.f. 16.6.2005. For the period after 1.6.2007 with the introduction of mining service, there remains no doubt with regard to classification of service, in view of CBEC Instruction letter F.No. 232/2/2006-CX.4, dated 12-11-2007 as reproduced in the foregoing paras.

21. Now, I come to the second issue. It is contended by M/s Mahalaxmi that since the main contractors, M/s. Ranjit Construction Ltd now known as M/s. Ranjit Buildcon Ltd and M/s. Sadbhav Engineering Ltd have paid service tax on entire value of contract which includes value of sub-contract also, they are not liable to pay service tax. They

27


relied upon the CBEC Circular No. B/43/4/97 TRU Dt. 02.07.1997 to contend that being sub-contractor, they were not liable to pay service tax. They relied on the following judgments of the Tribunal citing the said Circular.

(1) Koch – Glitsch India Ltd. Vs. CCE & Custom, Vadodara-1, 2009 (13) STR 636 (Tri. Ahmedabad)

(2) Urvi Construction Vs. CST Ahmedabad2010 (17) STR 302 (Tri, Ahmedabad)

21.1 I have carefully gone through both the cited case laws and observe that in the second judgment the Hon’ble Tribunal has relied on the above referred Koch – Glitsch India judgment. The first para of the Koch – Glitsch India judgment is reproduced hereunder for understanding the Board’s Circular F.No. B/43/4/97 TRU dated 02.07.1997 cited by the assessee.

“A short issue involved in this appeal. The appellant took service tax credit of Rs. 5,16,431/- paid by their sub-contractor, who were involved in installation and commissioning services after 1.7.2003. The ground taken by the Revenue for rejection is clarification issued by the Board vide letter F.No. B/43/4/97 TRU dated 02.07.1997, wherein it was clarified that where the services has been provided by the sub-contractors, such sub-contractors are not liable to pay service tax and the service tax liability is on the main contractor”.

I find that the judgment in both the above cases is against the Revenue. In the above referred Urvi Construction Vs. CST Ahmedabad judgment, the Hon’ble Tribunal has observed that “Taking note of the fact of the contention that main contractor has paid the service tax and charging service tax on the sub-contractor again would amount to taxing the same service twice and also taking note of the circular cited by the learned advocate and the decision of the Tribunal cited, I find that if the appellant is required to pay the service tax it would amount to taxing the same service twice and the circular and the Tribunal’s decision are squarely applicable to the facts of this case and accordingly appeal is allowed with consequential relief to the appellant”.

21.2 CBEC vide Circular No.96/7/2007-ST dated 23.8.2007 clarified that sub-contractors are liable to pay service tax, the relevant portion of which is reproduced below. This circular supersedes all circulars, clarifications and communications, other than Orders issued under section 37B of the Central Excise Act, 1944 (as made applicable to service tax by section 83 of the Finance Act, 1994), issued from time to time by the CBEC, DG (Service Tax) and various field formations on all technical issues including the scope and classification of taxable services, valuation of taxable services, export of services, services received from outside India, scope of exemptions and all other matters on levy of service tax. With the issue of this circular, all earlier clarifications issued on technical issues relating to service tax stand withdrawn.

999.03 /23.08.07

A taxable service provider outsources a part of the work by engaging another service provider, generally known as sub-contractor. Service tax is paid by the service provider for the total work. In such cases, whether service tax is liable to be paid by the service provider known as sub-contractor who undertakes only part of the whole work.

A sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the sub-contractor. Services provided by sub-contractors are in the nature of input services. Service tax is, therefore, leviable on

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any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services. The fact that a given taxable service is intended for use as an input service by another service provider does not alter the taxability of the service provided.

Thus, the Board’s Clarification F.No. B/43/4/97 TRU dated 02.07.1997 cited by the assessee was in force till the issuance of the Circular No.96/7/2007-ST dated 23.8.2007. In the case before me, the period of demand is from 15.10.2006 to 10.7.2008. Therefore, the said assessee being the sub-contractor of the main/Principal contractors is liable to pay service tax for the period from 23.8.2007 onwards. I find that the above cited judgments of the Hon’ble Tribunal are squarely applicable in the case before me and the said two judgments have been accepted by the department and no further contrary view is available. I also observe that the aforesaid clarification issued by the Board is binding and meant for adoption for the purposes of bringing uniformity as held by the judgments of Hon'ble the Supreme Court in the cases of Ranadey Micronutrients v. Collector of Central Excise - 1996 (87) E.L.T. 19 (S.C.) and Paper Products Ltd. v. Commissioner of Central Excise - 1999 (112) E.L.T. 765 (S.C.).

21.3 I observe that the investigation has not examined the issue in light of the above said Board’s clarification and the applicability of the above decisions of the Hon’ble CESTAT.

21.4 Now, the limited issue now before me is whether for the period prior to 23.8.2007, the principal contractors have paid service tax on the entire amount of contract which includes the amount paid to the sub-contractor, M/s Mahalaxmi by the Principal contractors. Therefore, as a measure of abundant precaution to safeguard the Government revenue, I proceed to verify the service tax payment made by the Principal contractors under the said agreements in question.

21.5 I find that the Principal contractors are registered with the Service Tax department. In this regard, I have also gone through the R.A Bills raised by M/s Ranjit Construction Ltd, worksheet indicating challan numbers and date evidencing payment of service tax of the said bills by M/s Ranjit Construction, agreement No.053289/0003J/RP/Cont.Mines/OBR/06 dated 14.09.2006 entered by them with the mining company Neyveli Lignite Corporation Ltd for Barsinagar, Bikaner site and agreement dated 13.9.2007 and LOI No. GMDC/LP/12410/07-08 dated 10.9.2007 with GMDC at Rajpardi site vis-à-vis subcontract agreement dated 21.9.2006 and 20.9.2007/ supplementary agreement dated 1.6.2008 entered by Ranjit Construction with M/s Mahalaxmi. I find from the agreement dated 21.9.2006 entered between M/s Ranjit Construction and Mahalaxmi that M/s Mahalaxmi has undertaken the work allotted to M/s Ranjit Construction vide Contract No.053289/0003J/RP/Cont.Mines/OBR/06 dated 14.09.2006 by the mining company Neyveli Lignite Corporation Ltd for Barsinagar, Bikaner site. Similarly, I find from the agreement dated 20.9.2007 entered between M/s Ranjit Construction and Mahalaxmi that M/s Mahalaxmi has undertaken the work allotted to M/s Ranjit Construction vide Contract dated 13.09.2007 by GMDC for Rajpardi site. The R.A.Bills issued by M/s Ranjit Construction Ltd clearly indicates the description and details of the said contracts. Thus, scrutiny of the aforesaid documents satisfactorily indicates that M/s Ranjit Construction Ltd has discharged service tax on the invoices raised to Neyvelii Lignites and GMDC. M/s Ranjit Construction Ltd who is the Principal contractors received payment from M/s Neyveli Lignite and GMDC, after

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which M/s Ranjit Construction Ltd made payment to the sub-contractor M/s Mahalaxmi. As held above, M/s Mahalaxmi is not required to pay service tax in the capacity of a sub-contractor for the period prior to 23.8.2007 in case of R.A Bills raised to M/s Ranjit Construction under the agreement in question as the Principal contractor M/s Ranjit Construction has discharged the service tax liability.

21.6 However, the said assessee could not produce evidence regarding payment of service tax by the other Principal contractor M/s Sadbhav Engineering Ltd as done in the case of M/s Ranjit Construction Ltd. Therefore, I find that service tax is recoverable from the said sub-contractor, M/s Mahalaxmi in case of R.A Bills raised to the Principal contractor, M/s Sadbhav Engineering Ltd for the period from 15.10.2006 to 22.8.2007.

21.7 Therefore, out of the total demand of Rs. 6,44,48,537/- as detailed in Annexure-A to the show cause notice, the demand of service tax of Rs. 1,65,56,563/- as detailed in the below given Table-1, pertaining to the R.A. Bills raised by M/s Mahalaxmi to the Principal M/s Ranjit Construction for the period from 15.10.2006 to 22.8.2007 does not survive:

Table-1Bills prior to 23.08.2007 ( raised to Ranjit Construction.)

Sr No.

Sr. No.As per Annexure A

Date of bill

RA No.

Issued to whom Site Value Service Tax Edu.

CessSHE Cess Total

11 10/15/2006 A-25

Ranjit Construction Co

Rajpardi 2,159,320 259,118 5,182 0 264,301

23 11/7/2006 3


Bikaner 5,467,220 656,066 13,121 0 669,188

35 11/20/2006 4


Bikaner 3,159,195 379,103 7,582 0 386,685

47 11/29/2006 5


Bikaner 8,113,781 973,654 19,473 0 993,127

510 12/22/2006 6

Ranjit Buildcon Ltd

Bikaner 7,600,417 912,050 18,241 0 930,291

611 1/1/2007 7

Ranjit Buildcon Ltd

Bikaner 5,215,004 625,800 12,516 0 638,316

713 1/12/2007 8B

Ranjit Buildcon Ltd

Bikaner 6,727,859 807,343 16,147 0 823,490

815 1/31/2007 9

Ranjit Buildcon Ltd

Bikaner 9,534,322 1,144,119 22,882 0 1,167,001

916 1/31/2007 10

Ranjit Buildcon Ltd

Bikaner 6,072,925 728,751 14,575 0 743,326

1019 2/26/2007 11

Ranjit Buildcon Ltd

Bikaner 3,616,970 434,036 8,681 0 442,717

1120 3/1/2007 12

Ranjit Buildcon Ltd

Bikaner 8,440,409 1,012,849 20,257 0 1,033,106

1223 3/26/2007 13

Ranjit Buildcon Ltd

Bikaner 1,612,338 193,481 3,870 0 197,350

1324 3/28/2007 14

Ranjit Buildcon Ltd

Bikaner 2,976,132 357,136 7,143 0 364,279

1426 3/31/2007 15

Ranjit Buildcon Ltd

Bikaner 3,724,096 446,892 8,938 0 455,829

1527 3/31/2007 16

Ranjit Buildcon Ltd

Bikaner 6,055,321 726,639 14,533 0 741,171

1629 4/20/2007 16A

Ranjit Buildcon Ltd

Bikaner 6,973,206 836,785 16,736 0 853,520

1732 5/21/2007 17

Ranjit Buildcon Ltd

Bikaner 5,554,602 666,552 13,331 6,666 686,549

1833 5/30/2007 18

Ranjit Buildcon Ltd

Bikaner 3,517,794 422,135 8,443 4,221 434,799

19 35 6/11/2007 19 Ranjit Bikaner 7,666,306 919,957 18,399 9,200 947,555

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Buildcon Ltd

2037 6/28/2007 20

Ranjit Buildcon Ltd

Bikaner 7,720,360 926,443 18,529 9,264 954,236

2138 7/9/2007 21

Ranjit Buildcon Ltd

Bikaner 4,040,660 484,879 9,698 4,849 499,426

2240 7/23/2007 21A

Ranjit Buildcon Ltd

Bikaner 5,473,600 656,832 13,137 6,568 676,537

2341 7/25/2007 22

Ranjit Buildcon Ltd

Bikaner 10,687,843 1,282,541 25,651 12,825 1,321,017

2443 8/9/2007 23

Ranjit Buildcon Ltd

Bikaner 2,692,156 323,059 6,461 3,231 332,750

TOTAL 13,48,01,836 161,76,220 3,23,524 56,824 1,65,56,563

Whereas, the demand of service tax of Rs. 1,82,13,837/- as detailed in the below given Table-2, pertaining to the R.A. Bills raised by M/s Mahalaxmi to the Principal M/s Sadbhav Engineering Ltd for the period from 15.10.2006 to 22.8.2007 sustains:

Table-2Bills prior to 23.08.2007 ( raised to Sadbhav Enginering Ltd.)

Sr No.


Date of bill RA No. Issued to whom Site Value Service Tax Edu.

CessSHE Cess Total

12 10/20/2006 9 Sadbhav

Engg. Ltd Bhavnagar 5,979,229 717,507 14,350 0 731,858

24 11/11/2006 10 Sadbhav

Engg. Ltd Bhavnagar 13,748,116 1,649,774 32,995 0 1,682,769

36 11/22/2006 10 Sadbhav


48 12/7/2006 11 Sadbhav


59 12/20/2006 11 Sadbhav

Engg. Ltd Bhavnagar 8,236,706 988,405 19,768 0 1,008,173

612 1/6/2007 12 Sadbhav


714 1/22/2007 12 Sadbhav


817 2/12/2007 13 Sadbhav


918 2/19/2007 13 Sadbhav


1021 3/7/2007 14 Sadbhav


1122 3/19/2007 14 Sadbhav


1225 3/31/2007 15 Sadbhav


1328 4/19/2007 15 Sadbhav


1430 5/10/2007 16 Sadbhav


1531 5/21/2007 16

AdhocSadbhav Engg. Ltd Bhavnagar 3,628,018 435,362 8,707 4,354 448,423

1634 6/7/2007 17 Sadbhav

Engg. Ltd Bhavnagar 8,366,752 1,004,010 20,080 10,040 1,034,131

1736 6/18/2007 17 Sadbhav

Engg. Ltd Bhavnagar 2,180,887 261,706 5,234 2,617 269,558

1839 7/11/2007 18 Sadbhav

Engg. Ltd Bhavnagar 2,853,524 342,423 6,848 3,424 352,696

1942 8/9/2007 19 Sadbhav

Engg. Ltd Bhavnagar 50,773 6,093 122 61 6,276

20 TOTAL 14,86,38,380 1,78,36,606 3,56,732 20,496 1,82,13,837

For the period from 23.8.2007 to 10.7.2008, sub-contractor, M/s Mahalaxmi is required to pay service tax on the R.A.Bills raised to both the Principal Contractors, as held above. M/s Mahalaxmi vide their letter dated 17.3.2013 submitted that demand for the said period works out to Rs. 2,72,68,592/-. However, I find that they have not submitted any basis for working out the said amount of service tax. I, therefore work out the demand for

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the period from 23.8.2007 to 10.7.2008 as per Annexure-A to the show cause notice starting with Sr.No. 44 showing R.A.Bill No. 24 dated 30.8.2007 which works out to 2,96,78,137/- as detailed in Table-3 below:

Table-3Bills after 23.08.2007 ( raised to Ranjit Buildcon Ltd. & Sadbhav Engineering Ltd.)

Sr No.


Date of bill

RA No.

Issued to whom Site Value Service

TaxEdu. Cess

SHE Cess Total

1 44 8/30/2007 24 Ranjit Buildcon Ltd Bikaner 12,627,654 1,515,318 30,306 15,153 1,560,778

2 45 9/8/2007 Final Ranjit Buildcon Ltd Rajpardi 3,314,709 397,765 7,955 3,978 409,698

3 46 9/9/2007 20 Sadbhav Engg. Ltd Bhavnagar 97,831 11,740 235 117 12,092

4 47 9/10/2007 25 Ranjit Buildcon Ltd Bikaner 752,347 90,282 1,806 903 92,990

5 48 9/25/2007 18 Adhoc

Sadbhav Engg. Ltd Bhavnagar 264,142 31,697 634 317 32,648

6 49 9/27/2007 26 Ranjit Buildcon Ltd Bikaner 7,342,716 881,126 17,623 8,811 907,560

7 50 10/8/2007 21 Sadbhav Engg. Ltd Bhavnagar 428,511 51,421 1,028 514 52,964


9 52 10/20/2007 27A Ranjit Buildcon Ltd Bikaner 3,734,333 448,120 8,962 4,481 461,564





14 57 12/10/2007 31 Ranjit Buildcon Ltd Bikaner 353,071 42,369 847 424 43,640







21 64 2/18/2008 1 Ranjit Buildcon Ltd Rajpardi 12,271,512 1,472,581 29,452 14,726 1,516,759









30 73 3/25/2008 A-26 Ranjit Buildcon Ltd Panandhro 5,674,406 680,929 13,619 6,809 701,357



33 76 3/31/2008 39A Ranjit Buildcon Ltd Bikaner 2,140,500 256,860 5,137 2,569 264,566







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40 83 7/9/2008 43 Ranjit Buildcon Ltd Bikaner 226,800 27,216 544 272 28,032


TOTAL 24,01,14,354 2,88,13,722 5,76,274 2,88,137 2,96,78,137

21.8 In view of the above discussion, service tax of Rs. 4,78,91,974/- (Rs. 2,96,78,137/- + Rs. 1,82,13,837/-) as detailed on Table-2 and Table-3 is recoverable from M/s Mahalaxmi under proviso to Section 73(1) of the Finance Act, 1994 along with interest under Section 75 of the Finance Act, 1994. However, since M/s Mahalaxmi had paid service tax of Rs. 1,00,00,000/- during the course of investigation, the same shall be appropriated against the above demand of Rs. 4,78,91,974/- (Rs. 2,96,78,137/- + Rs. 1,82,13,837/-).

22. I now take up the issue of revenue neutrality. I observe that in the impugned show cause notice, allegation is of non payment of service tax by M/s Mahalaxmi being sub-contractors. The said service tax was required to be paid by them in the manner prescribed in the Finance Act, 1994 and Rules made there under followed by the act of claiming of cenvat credit by the two Principal Contractors. The said assessee is trying to get waiver of the prerequisite of payment of service tax since cenvat credit was admissible which is like putting the cart before the horse. I observe that if the said plea of revenue neutrality is accepted then it will lead to a situation which will make rules of payment of service tax redundant and nobody will discharge the service tax liability under the pretext of availability of cenvat credit on the other side which is not the intention of the legislature. Moreover, claim of revenue neutrality can only be raised by the Principal Contractors and not by the sub-contractor. In view of the above discussion, I do not find any merit in the plea of revenue neutrality raised by M/s Mahalaxmi. Moreover, the availability of cenvat credit by the Principal contractor is not an issue before me in the present show cause notice.

22.1 In this regard, I place reliance on the judgment of Jay Yushin Ltd v/s Commissioner of Central Excise, New Delhi reported at 2000(119) E.L.T. 718 (Tribunal-LB). In the said judgement it is clearly held that revenue neutrality being a question of fact, the same is to be established in the facts of each case and not merely by showing the availability of an alternate scheme. It is also held therein that where the scheme opted by the assessee is found to be misused, the existence of an alternate scheme would not be an acceptable defence.

22.2 In view of the above, I find that M/s Mahalaxmi should have got themselves registered from 15.10.2006 and raised R.A.Bills to the Principal Contractor for charging the value and payment of service tax thereof. The Principal Contractors could have availed CENVAT credit of the service tax paid by them which could have later on been used by them for payment of service tax. This procedure has not been followed in the case before me.

23. I now take up the issue of suppression of facts and invoking of the extended period. M/s Mahalaxmi cited letter F.No. STC/4-115/CLF/2006, 31.1.2006 issued by the Joint Commissioner, Service Tax, Ahmedabad. I find that vide the said letter, the Principal contractor M/s Ranjit Construction Ltd were informed by the Joint Commissioner of Service Tax that their services were classifiable under the service category of Site formation and clearance, excavation and earth moving and demolition services; that any person hired by them to work under their direct supervision, control and specific instruction/guidelines need not pay any tax separately provided the entire tax liability on the site formation service is discharged by them as the main service provider and no amount/consideration is received by the person hired by them from their principal in any manner, in addition to what had been paid to them. The aforesaid letter of the Joint

33


Commissioner is in line with the Board’s clarification of 1997. However, the said letter was addressed to Principal Contractor Ranjit Construction Ltd and not to M/s Mahalaxmi, which doesnot in any way suggest that the department was aware of the activities carried out by M/s Mahalaxmi. Hence, the attempt to take shelter of the said letter cannot be considered so far as the issue of suppression of facts is concerned. Inspite of this letter dated 31.1.2006, M/s Mahalaxmi provided services from 15.10.2006 and obtained Service Tax registration only in the month of January-2008 under the category of Mining Services. They tried to evade obtaining the registration and payment of service tax by describing their services in the invoices as ‘Hiring of equipments’. Furthermore, with the issuance of the Circular No.96/7/2007-ST dated 23.8.2007 it was abundantly clear that they being sub-contractor of the Principal contractor were liable to pay service tax and the applicability of the above letter of the Joint Commissioner ceased to exist as far as the taxability of the sub-contractor is concerned. I find that they failed to obtain registration till January-2008, failed to file ST-3 returns, failed to assess Service tax and failed to pay the same by the due date prescribed under the Finance Act,1994 and rules made there under. All these acts were committed by them with intention to evade payment of service tax.

As regards, their contention that department has carried out audit of their records for the period from Jan-2008 to Mar-2009 on 6.11.2009 and 20.11.2009, I find that the demand is for the period from Oct’2006 for non payment of tax by the sub-contractor. The audit has verified the records for the period after Jan’2008 i.e. after M/s Mahalaxmi had obtained Service Tax Registration when the taxability of the sub-contractor was not in dispute after the Master Circular of 2007. The function of audit is confined to the records maintained for the purpose of service tax and not beyond that. Based on the records, it was objected by the audit party that the said assesee failed to pay service tax for the financial year 2007-08.

Therefore I find that there exists sufficient ground for invoking extended period in the case on hand.

24. Penalties under Section 76,77 and 78 :-Penalty under section 76:-As discussed in the foregoing paras, the said assessee has not paid service tax under the service category of “Site formation and clearance, excavation and earth moving and demolition services”/ “mining services” for the period from 23.8.2007 to 10.7.2008 within the stipulated time period as prescribed under Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994. However, with regard to the issue of imposition of penalty under Section 76 of the Finance Act, 1994, I observe that penalty under Section 76 and 78 of the Finance Act, 1994 are mutually exclusive w.e.f 10.5.2008 and once penalty under Section 78 is imposed, no penalty under Section 76 can be imposed in terms of the proviso inserted in Section 78 w.e.f 10.5.2008 in this regard. Therefore, no penalty under Section 76 is imposable for the period from 10.5.2008 onwards. In the case before me, the demand of service tax is for the period from Oct’2006 to July’2008. Therefore, I hold the said assessee, M/s Mahalaxmi liable to penalty under Section 76 of the Finance Act, 1994 for the period upto 9.5.2008.

Penalty under section 78:-

I further find that this is a clear case of suppression as the said assessee, M/s Mahalaxmi obtained, the Service Tax registration as late as in Jan’2008, had late filed the statutory ST-3 returns and had suppressed the taxable value in the ST-3 Returns filed by them. Therefore, their bonafide doesnot get established. This is a case of deliberate suppression of facts with a willful intention to evade payment of service tax. I find that the said

34


assessee has suppressed the facts from the service tax authorities with intention to evade payment of service tax, penalty under Section 78 of the Finance Act, 1994 is mandatorily imposable as has been held by the Apex court in the case of Dharmendra Textile Mills Ltd-2008 (231) ELT 3 (SC) and Rajasthan Spinning & Weaving Mills Ltd-2009 (238) ELT 3 (SC). Therefore, I deem it a fit case to impose penalty on the said assessee under Section 78 of the Finance Act, 1994.

Simultaneous Penalties under section 76 & 78:-

As regards imposition of simultaneous penalty under section 76 and 78 of the Finance Act, 1994, I place my reliance on the judgment of Hon’ble High Court of Kerala in the case of Assistant Commissioner of Central Excise v. Krishna Poduval as reported at [2006] 3 STT 96 (KER) which is aptly applicable to the present case. I find that the imposition of penalty under sections 76 and 78 of the Act is for non payment of service tax and suppression of value of taxable service respectively which are two distinct and separate offences attracting separate penalties. I find that the said assessee, M/s Mahalaxmi has committed both the offences and therefore penalties under section 76 and 78 of the Finance Act, 1994 are imposable on the said assessee upto the period of 9.5.2008.

Penalty under section 77:-As regards imposition of penalty under section 77 of the Finance Act, 1994, I observe that as discussed above the said assessee was liable to pay service tax under the category of “Site formation and clearance, excavation and earth moving and demolition services”/ “mining services” in the capacity of sub-contractor as provider of service from 15.10.2006 onwards as held above, but they failed to obtain registration certificate under the said category till Jan’08 as required under section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994. The said contraventions have made the said assessee liable to penalty under section 77 of the Finance Act, 1994 as it existed at material time i.e. prior to amendment in Section 77 w.e.f 10.5.2008.

24.1 Benefit under Section 80:-As regards invoking Section 80 of the Finance Act, 1994 for waiver of penalty,

the said assessee has not produced any reasonable cause for the failure to pay service tax except that it was their bonafide belief that service tax was not payable by them. As observed in earlier part of this order, I find that the short payment of the service tax is found to be with intention and their claim for bonafide belief can not be accepted. Accordingly, I am unable to consider the benefit of Section 80 for waiver of penalties under section 76,77 and 78 of the Finance Act,1994.

24.2 The assessee has cited various decisions for non imposition of penalties under section 76, 77 and 78 of the Finance Act,1994, which I have gone through, however I find that the same are not applicable in the case on hand as discussed above.

25 In view of the foregoing discussion, I pass the following order.

ORDER

i). I confirm the demand of Service Tax amounting to Rs. 2,96,78,137/- (Rupees Two crore ninety six lakh seventy eight thousand one hundred and thirty seven only) (including education cess and secondary education cess) for the period from 23.8.2007 to 10.7.2008 under Section 73(2) of Finance Act, 1994;

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ii). I confirm the demand of Service Tax amounting to Rs. 1,82,13,837/- (Rupees One crore eighty two lakh thirteen thousand eight hundred and thirty seven only) (including education cess and secondary education cess) for the period from 15.10.2006 to 22.8.2007 under Section 73(2) of Finance Act, 1994;

iii). I order to appropriate service tax of Rs. 1,00,00,000/- (Rupees one crore only) (including education cess and secondary education cess) paid by the said assessee, M/s Mahalaxmi during the course of investigation, against the above confirmed demand;

iv). I order to recover interest on the above confirmed demand of Rs. 4,78,91,974/- (Rs. 2,96,78,137/- + Rs. 1,82,13,837/-) (Rupees Four crore seventy eight lakh ninety one thousand nine hundred and seventy four only) (including education cess and secondary education cess) at the prescribed rate from the said assessee, M/s Mahalaxmi under Section 75 of the Finance Act, 1994;

v). I impose penalty of Rs.200/- (Rupees Two hundred only) per day for the period during which failure to pay the tax continued, or at the rate of 2% of such tax, per month, whichever is higher, starting with the first day i.e. 15.10.2006 after the due date till the date of actual payment of the outstanding amount of service tax upon the said assessee, M/s Mahalaxmi under Section 76 of the Finance Act, 1994, for the period from 15.10.2006 to 9.5.2008; provided that the amount of penalty payable in terms of this section shall not exceed the service tax payable by the said assessee for the period from 15.10.2006 to 9.5.2008;

vi). I impose penalty of Rs. 4,78,91,974/- (Rs. 2,96,78,137/- + Rs. 1,82,13,837/-) (Rupees Four crore seventy eight lakh ninety one thousand nine hundred and seventy four only) on the said assessee, M/s Mahalaxmi under section 78 of the Finance Act, 1994 for suppressing the value of taxable services provided by them before the department with intent to evade payment of service tax.. In the event of the said assessee, M/s Mahalaxmi opting to pay the amount of service tax along with all other dues as confirmed and ordered to be recovered, within thirty days from the date of communication of this order, the amount of penalty liable to be paid by them under Section 78 of the Finance Act, 1994 shall be 25% of the said amount. However, the benefit of reduced penalty shall be available only if the amount of penalty is also paid within the period of thirty days from the communication of this order, otherwise full penalty shall be paid as imposed in the above order.

vii). I impose penalty of Rs. 1000/- (Rupees One thousand only) under section 77 of the Finance Act, 1994 as it existed at material time i.e. prior to amendment in Section 77 w.e.f 10.5.2008 on the said assessee, M/s Mahalaxmi for contravention of section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994;

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viii). I drop the demand of service tax of Rs. 1,65,56,563/- (Rupees One crore sixty five lakh fifty six thousand five hundred and sixty three only) (including education cess and secondary education cess) for the period from 15.10.2006 to 22.8.2007.

(Tejasvini P.Kumar)Commissioner,

Service Tax Ahmedabad

F.No. STC/4-7/O&A/DGCEI/12-13 Date:30/03/2013BY REGD. POST A.D.

To M/s. Mahalaxmi Infracontract Ltd., B-21, Corporate House, Opp. Pakwan Opp. Karnavati Club, S. G. Highway, Ahmedabad – 380 054

Copy to:

1. The Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone, Ahmedabad.

2. The Additional Director General, Directorate General of Central Excise Intelligence, Ahmedabad Zonal unit, 1st Floor, Preema Chambers, Near Mithakhali Six Roads, Navrangpura, Ahmedabad – 380006.

3. The Deputy/Assistant Commissioner, Service Tax, Division-III, Ahmedabad.4. The Superintendent of Service Tax, Range- XV, Division-III, Ahmedabad.5. Guard File.

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