The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has dismissed the department’s appeal holding that the activity of beneficiation and washing of coal could not be taxed under the category of “Business Auxiliary Service” (BAS) for the period prior to June 1, 2007. 

The Bench of Justice Ashok Jindal (Judicial Member) and P.V. Subba Rao (Technical Member) upheld the adjudicating authority’s order dropping the service tax demand and reaffirmed the Tribunal’s consistent view that coal beneficiation forms part of mining services, a taxable category introduced only with effect from June 1, 2007. 

The dispute originated from an audit conducted by the Service Tax Department, which alleged that Aryan Coal Benefications Pvt. Ltd. had received various amounts under heads such as consultancy fees, commission income, loading and unloading charges, and provisional beneficiation receipts without properly discharging service tax liability.

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The Department also alleged suppression of taxable value and improper disclosure in ST-3 returns, leading to issuance of multiple show cause notices. The notices sought recovery of approximately ₹17.50 crore for earlier periods and an additional ₹11.54 crore for April 2008 to September 2008, among other allegations. 

However, the adjudicating authority dropped the proceedings, prompting the Revenue to approach the Tribunal.

The department argued that coal beneficiation or washing did not amount to “manufacture”. Consequently, the activity was taxable as Business Auxiliary Service under the Finance Act, 1994 during the period June 16, 2005 to May 31, 2007. The adjudicating authority had erred in dropping the demand.

The department relied upon the Supreme Court’s decision in Tata Iron & Steel Co. Ltd., wherein washing of coal was held not to amount to manufacture, contending that the activity should therefore be treated as a taxable service. 

The respondent relied heavily on an earlier CESTAT decision rendered in its own case in April 2024, wherein the Tribunal had already examined the identical controversy.

It was argued that coal beneficiation is intrinsically connected with mining operations. Parliament introduced a separate taxable entry for “services in relation to mining” only with effect from June 1, 2007. Once the legislature specifically classified the activity under mining services, it could not simultaneously be brought within the ambit of Business Auxiliary Service for the earlier period.

The assessee also relied upon earlier Tribunal decisions including Aryan Energy Pvt. Ltd., Spectrum Coal & Power Ltd., and Global Coal & Mining Pvt. Ltd., all of which consistently held that beneficiation of coal becomes taxable only after the introduction of mining services. 

The Tribunal noted that the issue was no longer res integra and had already been settled through a series of judicial pronouncements.

It observed that previous decisions had consistently held that beneficiation and washing of coal are activities integrally connected with mining. Since “mining service” was introduced as a separate taxable service from June 1, 2007, such activities could not be artificially classified under Business Auxiliary Service for the preceding period. Introduction of a distinct taxable category itself indicates that the activity was not intended to be covered under any pre-existing service category.

The Bench also referred to earlier judicial reasoning that introduction of a new taxable service necessarily presupposes that the activity was not covered elsewhere before its introduction. 

The Tribunal reaffirmed its earlier decisions involving the same assessee as well as other coal beneficiation companies.

It also took note that although the Revenue had challenged one of the earlier Tribunal decisions before the Supreme Court, the appeal had been dismissed on the ground of delay while leaving the question of law open. Nevertheless, the Tribunal found no reason to depart from its consistent line of authority. 

The Tribunal held that coal beneficiation and washing undertaken before June 1, 2007 cannot be taxed under Business Auxiliary Service. The activity falls within the scope of Mining Service, which became taxable only from June 1, 2007. Consequently, the service tax demand raised under Business Auxiliary Service for the pre-June 2007 period is legally unsustainable.

The Tribunal upheld the adjudicating authority’s order and dismissed the Revenue’s appeal.

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