Blasting Services for Digging Agricultural Wells Fall Under Service Tax Negative List: CESTAT

In a significant ruling on the taxability of services connected with agriculture, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that blasting services used for digging wells and borewells for agricultural purposes are intrinsically linked to agricultural operations and may fall within the Negative List of services under the Finance Act, 1994. The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has set aside the order of the Commissioner (Appeals) and remanded the matter to the adjudicating authority for fresh consideration after granting the service provider an opportunity to place supporting documents on record. The case arose from a service tax demand raised against a service provider engaged in blasting activities using explosives for digging tube wells, borewells and wells, primarily for agricultural farmers. Following intelligence inputs, the department alleged that the service provider was neither registered under service tax nor had discharged tax liability on blasting services rendered during the period from October 2013 to June 2017. A show cause notice issued in April 2019 proposed service tax on the ground that, after the introduction of the Negative List regime with effect from 1 July 2012, blasting services—even when used for digging wells for agriculture—were taxable, as they were neither specifically covered under the Negative List nor exempted by notification. While acknowledging that blasting services rendered to government bodies and local authorities were exempt under Notification No. 25/2012-ST, the department sought to tax services provided to agricultural farmers, alleging taxable receipts of over ₹1.25 crore. The original adjudicating authority, however, dropped the proceedings, holding that such services were covered under Section 66D(d)(i) of the Finance Act and relevant exemption notifications. This view was overturned by the Commissioner (Appeals), prompting the appeal before CESTAT. The central question before the Tribunal was whether blasting services used for digging wells in agricultural fields could be considered “services relating to agriculture” and “agricultural operations directly related to the production of agricultural produce” under Section 66D(d)(i) of the Finance Act, 1994, thereby falling within the Negative List and escaping service tax liability. The Tribunal noted that the blasting activity was not an independent service but formed an integral part of the composite activity of digging borewells and tube wells for irrigation. It accepted the contention that availability of water is fundamental to agriculture and that services facilitating irrigation are directly connected with the production of agricultural produce. The Bench emphasised that Section 66D(d)(i) uses inclusive language, covering “services relating to agriculture” by way of agricultural operations, and that the activities listed in the provision are illustrative rather than exhaustive. Rejecting the narrow interpretation adopted by the Commissioner (Appeals), the Tribunal relied on settled principles laid down by the Supreme Court that the use of the word “includes” in a statutory provision warrants a broad and expansive interpretation. It observed that facilitating water supply through blasting for wells and borewells squarely falls within the scope of agricultural operations related to agriculture. The Tribunal took note of the department’s contention that adequate documentary evidence had not been produced by the service provider. To balance equity and ensure proper factual verification, the Bench remanded the matter to the original adjudicating authority with directions to grant a fresh opportunity to the appellant to submit documents in support of the claim for exemption and Negative List coverage. Implications The ruling underscores a purposive and pragmatic approach to interpreting tax exemptions and the Negative List in the context of agriculture. It reinforces that services facilitating essential agricultural inputs such as irrigation cannot be viewed in isolation and taxed mechanically. The decision is expected to provide relief to service providers engaged in ancillary activities supporting agriculture, while also clarifying the scope of Section 66D(d)(i) of the Finance Act, 1994 Case Details Case Title: Shri Narayan Lal Versus Commissioner, CGST & Central Excise Case No.: Service Tax Appeal No. 50898 Of 2021 Date: 14.01.2026 Counsel For Appellant: Daksh Pareek, Advocate Counsel For Respondent: Aejaz Ahmad, Authorised Representative Click Here To Read Order Read More: Runway Resurfacing at Air Force Station Qualifies for Retrospective Service Tax Exemption: CESTAT

Blasting Services for Digging Agricultural Wells Fall Under Service Tax Negative List: CESTAT

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