The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh Bench, has set aside an ex-parte order confirming a service tax demand of ₹3.95 crore over the levy of service tax on mining royalty paid to the Government of Haryana and remanded the matter to the adjudicating authority after holding that the assessee was denied a reasonable opportunity of being heard, thereby violating the principles of natural justice.
The Bench comprising Justice S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) directed the Commissioner to reconsider the dispute afresh after granting the appellant an effective opportunity to file its reply, present evidence and make submissions. The Tribunal also instructed that a reasoned order be passed within three months from receipt of the certified copy of its order.
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The appellant/assessee is engaged in stone mining and the sale of associated minor minerals. The company obtained a mining lease from the Haryana Government in July 2015 and executed a lease deed on 26 October 2015 for which it was required to pay more than ₹25.54 crore in instalments as royalty, dead rent and other statutory charges.
Following an investigation by the Directorate General of GST Intelligence (DGGI), Rohtak, the department alleged that the company had failed to discharge service tax under the reverse charge mechanism on payments made to the Department of Mines and Geology, Haryana towards royalty and annual dead rent.
According to the department, services provided by the Government to business entities became taxable from 1 April 2016, and the grant of mining rights constituted a taxable service under the Finance Act, 1994. Based on these allegations, a show cause notice dated 11 September 2019 demanded ₹3,95,07,603 along with interest and penalties.
The Commissioner confirmed the entire demand, imposed an equivalent penalty under Section 78(1) of the Finance Act, 1994 and a further penalty of ₹10,000 under Section 77, primarily because no reply to the show cause notice was filed and the assessee did not appear during adjudication proceedings.
Before CESTAT, the company argued that it had not received the show cause notice and hearing notices in time and had received only one notice fixing the final hearing for 14 April 2020, when strict nationwide COVID-19 restrictions were in force, making attendance practically impossible. It also contended that the adjudicating authority ignored its detailed written submissions furnished earlier in response to departmental summons.
The appellant further submitted that the levy of service tax on mining royalty was itself a highly disputed legal issue during the relevant period. It relied upon the Supreme Court’s nine-Judge Constitution Bench decision in Mineral Area Development Authority v. Steel Authority of India Ltd., which finally settled issues relating to the nature of royalty only in July 2024.
The company also argued that its mining lease had been executed before 1 April 2016, when the levy on services provided by the Government to business entities came into effect. It relied upon the decision in the Principal Commissioner, CGST & Central Excise, Bhopal v. S.R. Traders, which was subsequently affirmed by the Supreme Court, to contend that service tax could not be levied in such circumstances.
After examining the record, CESTAT observed that the adjudicating authority had proceeded to decide the matter without granting the appellant a meaningful opportunity to defend itself.
The Tribunal noted that the scheduled hearing coincided with the nationwide COVID-19 lockdown, which reasonably explained the appellant’s inability to attend. It also found that the Commissioner had failed to consider the detailed submissions already furnished by the company during the investigation stage.
The Bench further observed that the legal issue regarding the taxability of mining royalty remained pending before the Supreme Court during the relevant period and was ultimately settled only in July 2024. Therefore, the Tribunal indicated that invocation of the extended limitation period in a matter involving a genuine interpretational dispute also required fresh examination.
Holding that the impugned order suffered from a clear breach of the principles of natural justice, CESTAT set aside the Commissioner’s order in its entirety and remanded the matter for fresh adjudication.
The Tribunal directed the Commissioner to provide the assessee with a proper opportunity to file its defence, hear all submissions and thereafter pass a reasoned order strictly in accordance with law within three months from receipt of the Tribunal’s order.
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