Order Date – 24 April 2023

Parties: M/s. The Madhya Pradesh State Mining, Corporation Limited Vs Pr. Commissioner, CGST & Central Excise

Facts – 

• The Appellant, M/s. The Madhya Pradesh State Mining, Corporation Limited, was granted rights to mine sand, rock, phosphate, flag stone, and coal by the Madhya Pradesh State Government.
• Pursuant to audit objections, a show cause notice was issued to the appellant proposing a demand of service tax with interest and penalty for the period from April 2013 to March 2017.alleging that the appellant had not paid service tax on income from forfeiture and contractual adjustments, on royalty paid to State Government, on Director sitting fee, and on area development charges.

Issue – 

• Whether the appellant is liable to pay service tax?

Order – 

• The Tribunal observed that the appellant has received the amount as consideration for the failure on the part of the contractors to honour the terms of the contract or violating the conditions of the contract. The Circular dated 28.02.2023 issued by the Central Board of Indirect Tax and Customs also provides that service tax cannot be levied on the amount collected for the said purpose. It is, therefore, not possible to sustain the demand.
• In the present case, the agreement between the appellant and State Government for grant of mining rights was executed on 02.01.2016 and on this date, the transactions involving assignment of right to use natural resource was not taxable.
• On a careful perusal of order dated 30.12.1996 issued by the State Government, it is apparent that the appellant was made entitled to 30% of the area development charges received by the State Government. These charges were paid to the appellant for meeting its administrative expenses, especially since the appellant is operating as a public sector undertaking of the State Government. There is no mention of any service which would be performed by the appellant in exchange of such amount.
• Thus, allocation of area development charges by the State Government can be regarded as income of the appellant, but it cannot be treated as consideration towards a service. The impugned order is set aside, and the appeal is allowed.