The nature of contracts in the mineral transportation sector, particularly for coal, often follows a structured arrangement between the contractor and the mining operator. A typical work order involves the loading of coal into tippers or dumpers from a designated crusher point. From there, the coal is transported to specified railway sidings within the mining areas, where it is unloaded. The agreements usually define a predetermined quantity of coal that must be transported. This requirement is often coupled with specific conditions that dictate the quantity to be moved per day, ensuring a steady flow of material.
In order to maintain consistency in operations, many contracts include a penalty clause. This clause applies if there is a shortfall in the agreed transportation quantity, ensuring that the transporter meets their obligations in both capacity and efficiency. Another common provision places the responsibility of maintaining private roads, excluding Public Works Department roads, on the transporter. These roads are essential for the movement of goods and are often located within or adjacent to mining areas.
Rates for these contracts are generally fixed and not subject to frequent changes. The only exception typically allowed is for adjustments based on fluctuations in the price of High-Speed Diesel (HSD), which is a major operating cost for heavy vehicles. Before commencing operations, the transporter provides a list of all tippers, dumpers, and pay loaders that will be deployed for the work. These details ensure transparency and operational readiness.
To maintain clear communication, the contractor assigns an on-site agent or representative. This person is responsible for receiving instructions from the mining company on behalf of the contractor and for ensuring these instructions are implemented without delay. Each vehicle used for coal transportation is marked with specific identifiers. They bear the words “On X Coalfield Ltd duty” in bold letters, along with the name of the area, the vehicle’s registration number, and the period of the contract. These markings serve both regulatory and operational purposes, ensuring proper identification of vehicles engaged in mining-related work.
Assumptions and Disclaimer
This discussion focuses on litigation related to transportation charges in the context of mineral transportation services. It specifically addresses disputes concerning the classification of such services under the Goods and Services Tax (GST) regime. The treatment of loading charges is excluded from this analysis, as they involve separate considerations that are not central to the primary disputes under review.
The emphasis is on assessing the merits of the cases rather than procedural or technical aspects such as limitation periods, the validity of show cause notices, or the applicability of penalties. The examination is based on general terms found in contracts within the industry. However, individual contract terms can vary, and such variations may significantly influence the tax implications and the outcome of litigation. Therefore, while the analysis provides a general perspective, it is not intended to substitute for a review of specific agreements in actual disputes.
Relevant Legal Provisions
The classification of mineral transportation services under GST primarily involves two Harmonized System of Nomenclature (HSN) codes: HSN 9965, which pertains to goods transport agencies (GTA), and HSN 9966, which covers rental services of transport vehicles. Understanding these codes and their associated GST rates is critical to determining the correct tax treatment.
HSN 9965 – Goods Transport Agency (GTA)
Under HSN 9965, the services of a goods transport agency for the transportation of goods, including used household goods for personal use, are covered. A goods transport agency is defined as any person who provides a service related to the transportation of goods by road and issues a consignment note, regardless of the terminology used for that note.
Transportation of goods by road, when not carried out by a GTA or courier agency, is generally exempt from GST under specific provisions of Notification No. 12/2017-CT (Rate), dated 28 June 2017. If GST is not paid under the forward charge mechanism, liability may shift under reverse charge provisions, depending on the nature of the transaction and the parties involved.
The GST rate for GTA services between 22 August 2017 and 18 July 2022 was either 5 percent or 12 percent. A 5 percent rate applies if the credit of input tax charged on goods and services used in supplying the service was not availed. Alternatively, a 12 percent rate applied if the GTA opted to pay at this higher rate, which then became mandatory for all services supplied by it.
HSN 9966 – Renting of Transport Vehicles
HSN 9966 pertains to rental services of transport vehicles with or without operators. This includes the rental of buses, coaches, trucks, and other motorized freight vehicles. The key distinction here is that the rental is usually for a defined period rather than being dependent on the distance traveled. Under this arrangement, the renter determines how and when the vehicles will be operated, sets schedules, defines routes, and controls other operational considerations.
Between 1 July 2017 and 18 July 2022, the GST rate for rental services of transport vehicles with operators, other than specified exceptions, was 18 percent. This classification does not include charter services for buses or coaches under other HSN codes.
Determining Criteria for HSN 9966
Several factors guide the classification of a service under HSN 9966. One is the rental period, which may be for a month, a week, or another fixed duration, rather than based on the distance traveled. The rental may be with or without operators. Another factor is control over the vehicle. If the renter defines how and when the vehicles will operate, sets schedules, routes, and manages other operational elements, the service is more likely to be classified as rental rather than transportation.
The key point is that the provision of the vehicle, along with operational control by the renter, constitutes a rental service. In such cases, the transaction is taxed differently from the transport of goods by road under the GTA category.
Authorities’ Views
Tax authorities often approach the classification of mineral transport contracts by focusing on the operational structure and control of the vehicles. Their argument typically begins with the premise that the arrangement is essentially a rental or hire agreement rather than a transportation service. They point out that in many cases, tippers, dumpers, loaders, and trucks are supplied to a mining lease operator for a defined period. The expenses for fuel are usually borne by the recipient of the service, which is seen as an indicator that operational control lies with the recipient.
Authorities also highlight that vehicles with drivers remain at the disposal of the mining lease operator for transporting minerals within the mining areas. This could be from the mining pit to a railway siding or a beneficiation plant, depending on the operator’s requirements during the contract period. This arrangement, in their view, allows the mining operator to use the vehicles according to their own scheduling, routing, and operational needs.
Based on these factors, authorities argue that this is not a transport of goods service but rather a form of time charter or rental service of transport vehicles with operators. As such, it should fall under HSN 9966 and attract GST at the rate of 18 percent. They contend that there is no contractual element requiring the transporter to issue a consignment note or to assume the liabilities that typically come with being a goods transport agency. Instead, the service is positioned as the hiring of vehicles with operational support, not the provision of a dedicated transportation service under GTA rules.
Impact of Circular No. 177
In December 2022, Circular No. 177/09/2022-TRU was issued to clarify the classification of certain services under GST. According to this circular, when vehicles such as tippers, dumpers, loaders, and trucks are supplied on hire to a mining lease operator and the fuel expenses are borne by the recipient, these services should be classified as rental services of transport vehicles with operators under HSN 9966. The GST rate applicable in such cases is 18 percent.
The circular explains that when vehicles are placed at the disposal of the recipient for some time, the recipient determines how and when the vehicles will operate, sets schedules, chooses routes, and manages other operational considerations. This level of control means the arrangement is not a transport of goods by road service. Instead, it constitutes a rental arrangement, even if the vehicles are used exclusively for transporting minerals.
Another important clarification in the circular is that renting of trucks or similar vehicles with drivers for a specific period is not equivalent to providing GTA services. The issuance of a consignment note, a defining feature of GTA services, is absent in such arrangements. Therefore, GST is applicable under the provisions for rental services, not under the GTA category.
Analysis of Circular No. 177
The classification guidance provided by Circular No. 177 raises a number of questions. One of the main points for analysis is whether the mining operator exercises complete control over the vehicles, including operational decisions such as schedules, routes, and load assignments. If the control is unilateral, it strengthens the argument for classification under HSN 9966. However, if control is exercised jointly or under strict contractual limitations, the service might lean toward transportation classification.
The duration of vehicle use also becomes relevant. If a vehicle is provided for a fixed period, such as ten days, without a requirement for transporting a specific quantity of minerals, this supports the rental classification. On the other hand, if the vehicle is engaged to transport a fixed quantity, such as 100,000 metric tons of coal, with the contractor deciding the logistics, it could align more closely with transportation services.
An additional consideration is whether, once the vehicle is deployed, the supplier loses the ability to reassign or operate it at their discretion. In a true rental arrangement, the supplier has no operational control once the vehicle is handed over. However, in transportation contracts, the service provider often retains some degree of control over how vehicles are operated.
The circular also indirectly raises questions about possession. If a mining operator is given possession of the vehicle, even temporarily, it leans toward a rental classification. If no possession is transferred and the contractor retains responsibility for operations, it may still be seen as transportation.
Lastly, the circular’s stance creates potential conflicts with certain judicial precedents under the earlier service tax regime. Courts and tribunals have, in some cases, treated similar arrangements as transportation services, especially when payment was based on tonnage or trips rather than rental periods.
Renting vs Transportation
One of the most debated issues in GST litigation for mineral transport services is the distinction between the renting of vehicles and the transportation of goods. This distinction is important because each category falls under different HSN codes and GST rates, and the liability provisions also differ.
Under common understanding, renting involves giving temporary possession and use of a property, in this case,, vehicles, for payment. The hirer is expected to return the property after the agreed period. Transportation, on the other hand, is the carriage of goods from one place to another under the operational control of the service provider, not the hirer.
A series of judgments under the service tax regime shed light on how courts and tribunals interpret these concepts. In CIT vs Poompuhar Shipping Corporation Ltd., the court explained that the normal meaning of hire is the giving of temporary possession and use of property other than money for compensation, with an obligation to return the property after the agreed term. This definition forms the basis for understanding renting in the GST context.
In Dharmabhakti Travels v. CCE, the tribunal observed that both control and possession are required for an arrangement to qualify as renting. The assessee provided vehicles to BSNL on a per-kilometre basis, with a driver, and the tribunal took the prima facie view that this was not a rent-a-cab service. Similar reasoning was applied in Lok Priya Travels v. CST, where operational control remained with the service provider, indicating transportation rather than renting.
In Kuldip Singh Gill v. CCE, the provision of vehicles to companies for transporting their employees or their children, with payment on a per-trip basis, was held to be a transport service rather than renting. The distinction lay in the fact that operational control, such as determining routes and schedules, stayed with the service provider.
In Shiva Travels v. CCE, the tribunal considered whether providing a driver made any difference to classification. The conclusion was that if a cab was given on rent with or without a driver for a defined period and was under the client’s control, it would be rented. However, if the cab was only engaged for carrying passengers from one location to another, with control retained by the cab owner, it was a transport service.
In R S Travels v. CCE, it was reiterated that for renting, the vehicle must be at the client’s disposal and under their control during the rental period. Where control remained with the operator and the service was limited to carrying persons or goods on specific trips, it could not be classified as renting.
In CCE v. Sachin Malhotra, the Uttarakhand High Court confirmed that unless control and possession of the vehicle are handed over to the hirer, there is no renting. Hiring vehicles on a per-kilometre basis without transferring possession and control was not liable to service tax under rent-a-cab services.
These rulings collectively underline that possession and operational control are decisive factors. When vehicles are deployed to perform specific transport jobs under the control of the service provider, the arrangement is likely to be treated as transportation. When the vehicles are handed over for the hirer’s use and decision-making, it is more likely to be treated as renting.
Renting vs Transportation in the Service Tax Regime
The classification debate also played out extensively under the service tax regime, especially for mineral transportation contracts. In Arjuna Carriers Pvt. Ltd. vs Commissioner of Service Tax, Raipur, for the period before June 2007, the assessee was engaged solely in transportation, not in loading or unloading. Service tax under GTA was being paid by the service recipient and accepted by the department. The tribunal held that the assessee was not liable for the cargo handling service.
In CCE and ST, Raipur vs Singh Transporters, the Supreme Court addressed the period from July 2007 to June 2012. It held that transportation of coal from pitheads to railway sidings within mining areas was classifiable under transport of goods by road service and did not involve mining of minerals, oil, or gas. This reinforced the view that such activities were essentially transportation services.
For the period from July 2012 to June 2017, the Arjuna Carriers case again came under consideration. The Supreme Court explicitly held that the impugned services were transportation of goods by road. However, the judgment did not definitively settle whether such transporters could be considered GTAs. The controversy often turned on whether the issuance of a consignment note was mandatory for GTA classification.
Transportation vs Goods Transport Agency (GTA)
The concept of a goods transport agency under GST mirrors that under the service tax regime. A GTA is any person who provides services for transporting goods by road and issues a consignment note. While the GST law does not define a consignment note, the earlier Service Tax Rules described it as a serially numbered document issued by a GTA against the receipt of goods, containing details such as the names of consignor and consignee, the registration number of the goods carriage, details of the goods, origin and destination points, and the person liable to pay service tax.
Under the Carriage of Goods by Road Act, 2007, a common carrier is required to issue a goods receipt after accepting goods for transport. This document serves as prima facie evidence of the goods’ particulars and includes the carrier’s undertaking to be liable for loss or damage to the consignment.
Two open questions often arise in litigation. First, can a weighment slip be treated as a consignment note? Second, does failure by the transporter to issue a consignment note absolve the recipient from GST liability? These questions are critical because issuing a consignment note triggers classification as a GTA, bringing the service within the GST net.
Impact of GST Liability Due to Non-Issuance of Consignment Notes
A consignment note transfers the lien of the goods to the carrier and makes the carrier responsible for safe delivery. This assumption of liability is one of the key reasons why only GTA services are taxed under GST in this category. Individual truck operators who do not issue consignment notes are generally outside the GTA definition.
Rulings from various authorities have held that even if a consignment note is not issued, if the carrier takes on the liability for the goods, they may still be considered a GTA. For example, the Rajasthan Appellate Authority for Advance Ruling concluded that if the carrier accepts liability and the lien is transferred, mere non-issuance of a consignment note does not remove the GTA status. Similarly, the Madras High Court ruled that the recipient of services cannot avoid service tax liability merely because the GTA failed to issue a consignment note.
However, under the mineral transportation context, several tribunal decisions have favoured transporters. In Northern Coalfields Ltd. v. CCE, Allahabad, and other similar cases, it was held that if no consignment note is issued, the mining operator is not liable under reverse charge for GTA services. These cases are currently pending before the Supreme Court without a stay, meaning the legal uncertainty remains unresolved.
Impact on Input Tax Credit of Mining Operators
If the Supreme Court rules in favour of transporters and determines that tax was not payable under reverse charge, the next question is whether mining operators who have already paid GST under reverse charge can retain the input tax credit claimed on those payments. The department could argue that since no tax was due, the credit was wrongly claimed and must be reversed. This risk highlights the importance for mining operators to monitor the progress of pending litigation and to assess the potential exposure in their tax positions.
GST Litigation on Mineral Transport Services – Judicial Observations and Final Rulings
The adjudication process in GST-related disputes concerning mineral transport and associated services often involves interpreting the scope of taxable services, the classification of contracts, and the eligibility of exemptions. Judicial forums such as the High Courts and the Supreme Court have examined whether contracts involving transportation, mining, renting of machinery, and cargo handling should be treated as composite supplies or independent services. This distinction directly impacts tax rates and compliance obligations.
In several rulings, courts have emphasized that the nature of the contract and the intention of the parties determine GST applicability. For instance, if transportation is a standalone activity billed separately, it may be taxed under goods transport service provisions. However, if it is intrinsically linked with mining operations or cargo handling, it could fall under a composite contract taxed at a higher rate.
Another recurring legal question involves the classification of renting services for mining equipment. Courts have examined whether such rentals are to be taxed as “transfer of the right to use goods” or as a pure service. Similarly, disputes on cargo handling charges have focused on whether the activity qualifies as a supply of service or forms part of a goods supply chain transaction.
Judicial bodies have also addressed retrospective demands, where tax authorities attempted to levy GST on services rendered before clarifying notifications were issued. Many rulings have leaned towards protecting taxpayers from retrospective tax burdens unless explicitly provided by law. Additionally, judgments have highlighted the importance of proper contract drafting and invoicing to avoid classification disputes.
Penalties and interest remain contentious issues in litigation. Courts have, in some cases, waived penalties where taxpayers acted in good faith or where legal interpretations were genuinely debatable. However, willful misclassification or suppression of facts has generally attracted strict penalties.
From a compliance perspective, judgments underline the necessity of robust documentation, clear segregation of services in contracts, and proper GST registration for all activities involved in the mining transport chain. Businesses are advised to maintain meticulous records, seek advance rulings when uncertain, and structure contracts to minimize ambiguity.
Overall, the judicial approach in GST litigation concerning mineral transport and related services reflects a balance between revenue protection and fairness to taxpayers. Clear classification, compliance diligence, and proactive legal strategies are key to minimizing future disputes.
Conclusion
The landscape of GST litigation in mineral transport services is shaped by the complex interplay of statutory provisions, contractual arrangements, and judicial interpretations. Disputes often arise from differences in classification, valuation, place of supply, and applicability of exemptions, particularly when activities such as the renting of mining equipment, transportation of extracted minerals, or cargo handling services are involved. The varying factual scenarios and contractual frameworks make a uniform approach challenging, leading to a wide spectrum of legal precedents.