2026-VIL-1477-CESTAT-KOL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Reverse Charge Mechanism - Taxability of Services Provided by Government - Point of Taxable Event - Natural Resource Extraction - Appellant is engaged in exploration and production of Coal Bed Methane pursuant to contract dated 26.07.2002 executed with Ministry of Petroleum and Natural Gas, Government of India. Under said contract, appellant is required to pay Royalty to Government of a State and Production Level Payment to Government of India. Department issued Show Cause Notice alleging that Royalty and Production Level Payment paid during period 01.04.2016 to 30.06.2017 were liable to service tax under Reverse Charge Mechanism. Appellant filed detailed reply contesting proposed demand. Principal Commissioner confirmed demand along with applicable interest and penalties - Whether appellant is liable to pay Service Tax under Reverse Charge Mechanism on Royalty and Production Level Payment paid to Government for natural resource extraction when agreement for mining was entered prior to 01.04.2016 - HELD - Prior to 01.04.2016, all services provided by Government or local authority were covered under negative list of services and accordingly not subjected to service tax. With effect from 01.04.2016, section 66D of Finance Act was amended and any service provided by Government to a business entity was excluded from negative list and became chargeable to service tax. For purposes of levying service tax, taxable event is construed as time when service is provided or agreed to be provided. To determine whether levy of service tax is applicable on particular activity, it is necessary to determine point of time when such activity is provided or agreed to be provided. For assignment of right to use natural resource or quarry or mining right, if agreement between parties was executed prior to 01.04.2016, services were received prior to 01.04.2016 when such services from Government were not subject to tax. Since the agreement for natural resource extraction was executed on 26.07.2002, which was prior to 01.04.2016, appellant would not be liable to pay service tax on payments made after 01.04.2016. Point of Taxation Rules deal with date on which payment of service tax has to be made and do not determine whether service is taxable or not, hence such rules would not be applicable to determine taxability of service received prior to 01.04.2016 - Impugned order is not sustainable in law and is set aside - Appeal is allowed with consequential relief
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