2009 (6) TMI 886 - Commissioner - Service Tax

Issues Involved:
1. Classification of the appellant's activity under "Business Auxiliary Service" (BAS).
2. Applicability of Notification No. 8/2005-S.T.
3. Invocation of the extended period for issuing the Show Cause Notice (SCN).
4. Imposition of penalty and interest.

Issue-wise Detailed Analysis:

1. Classification of the Appellant's Activity under "Business Auxiliary Service" (BAS):

The primary issue is whether the production of Waterbury's Compound, Listerine Mouthwash, and Coolmint Listerine Mouthwash by the appellant, using raw materials supplied by M/s. Pfizer Ltd., falls under the statutory definition of "Business Auxiliary Service" (BAS) as per Section 65(19) of the Finance Act, 1994. The appellant argued that their activities amounted to 'manufacture' under Section 2(f) of the Central Excise Act, 1944, and hence should be excluded from BAS. However, the adjudicating authority held that the products were non-excisable and thus did not meet the definition of 'manufacture' under the Central Excise Act. Consequently, the activities were classified under BAS, making the appellant liable for service tax.

2. Applicability of Notification No. 8/2005-S.T.:

The appellant contended that their activities should be exempt under Notification No. 8/2005-S.T., which exempts services where the goods produced are returned to the client for use in the manufacture of excisable goods. The adjudicating authority, however, noted that the exemption applies only when the goods produced are excisable and subject to duty. Since the appellant's products were non-excisable, the exemption under Notification No. 8/2005-S.T. was deemed inapplicable. The authority emphasized that the exemption is contingent on the goods being excisable and used in further manufacturing processes that incur excise duty.

3. Invocation of the Extended Period for Issuing the SCN:

The appellant argued that the SCN dated 6-7-2007, covering the period from September 2004 to July 2006, was time-barred, as it was issued beyond the normal period after the department became aware of their activities. The adjudicating authority acknowledged that the department had knowledge of the appellant's activities from a letter dated 3-2-2006, making the SCN issued on 6-7-2007 time-barred. The authority cited the Supreme Court's decision in M/s. Kushal Fertilizers (P) Ltd. v. CCE, Meerut, which held that the extended period could only be invoked if the SCN was issued within the normal period from the date of knowledge. Consequently, the demand for the period covered by the SCN dated 6-7-2007 was deemed unsustainable due to time-bar.

4. Imposition of Penalty and Interest:

The appellant argued against the imposition of penalties, citing the lack of mala fide intention and the interpretative nature of the issue. However, the adjudicating authority held that the appellant's failure to obtain registration, pay service tax, and file returns constituted a deliberate contravention of the Act and Rules. The authority imposed penalties under Section 78 of the Finance Act, 1994, along with interest under Section 75. The demand for Rs. 13,59,792/- was upheld with interest and an equal penalty, except for the period covered by the time-barred SCN.

Conclusion:

The adjudicating authority concluded that the appellant's activities fell under BAS and were not exempt under Notification No. 8/2005-S.T. The SCN dated 6-7-2007 was time-barred, but other SCNs issued within the permissible period were upheld. Penalties and interest were imposed for the contravention of the Act and Rules. The appeals were disposed of with these modifications.

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