2026-VIL-1042-CESTAT-KOL-ST
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SERVICE TAX CESTAT Cases

Service Tax liability on Royalty amounts withheld by Government authorities from works contract payments - Appellants engaged in providing works contract services for road and bridge construction, which are fully exempt from service tax, recorded expenditure on account of "royalty on mineral" in their balance sheets - Revenue notices alleging service tax liability on reverse charge mechanism basis on the amounts representing royalty payments, claiming such payments were made for mining rights granted by the State Government - Whether service tax is payable on on amounts withheld by Government authorities as royalty from works contract bills, when the contractors have not been granted any mining license and the withheld amounts are merely security pending submission of prescribed forms certifying purchase of minerals from licensed vendors – HELD - The allegation of service tax liability cannot be sustained on the basis of mere balance sheet entries without corroborative evidence demonstrating that the appellants had actually obtained mining rights or licenses from any government authority. The documentary evidence produced, including Forms M and N and payment statements from road development authorities, establishes that the amounts recorded as "royalty on mineral" represent only the withheld portions of contract bills pending submission of prescribed affidavits and particulars certifying legitimate purchase of minerals from licensed vendors. These withheld amounts are subsequently released once the requisite forms are submitted, constituting an administrative mechanism to ensure compliance with minor mineral concession rules rather than actual royalty payments by the appellants for mining rights - The SCN is entirely silent regarding what type of license was obtained by the appellants or from which authority, and that no evidence demonstrating the filing of periodic returns with State authorities regarding mined quantities or royalty payments has been produced by the revenue. Since the demand is based solely on balance sheet data without any independent or corroborative evidence and the allegation of suppression remains uncorroborated, the extended period of limitation is not invocable and the demand is hit by time bar. Mere reliance on balance sheet entries, income tax data, or Form 26AS without verification of the actual nature of receipts or proof of taxable services rendered is impermissible in law - The impugned orders are set aside on merits as well as on the ground of time bar. The appeal is allowed
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