2009 (9) TMI 745 - Commissioner - Service Tax

Issues:
1. Liability to pay service tax under Business Auxiliary Service (BAS) for undertaking job work of Heat Treatment.
2. Applicability of penalty under Sections 70, 77, and 78 of the Finance Act 1994.
3. Correctness of demand notice issued under Section 68 instead of Section 73(1).
4. Exclusion of job work from BAS due to double taxation concerns.

Analysis:

Issue 1: Liability to pay service tax under BAS for Heat Treatment job work
The appellant was alleged to have undertaken job work without obtaining Service Tax registration under BAS. The lower authority confirmed the demand, stating that Heat Treatment job work falls under the definition of BAS. However, the appellant argued that the process was incidental to manufacturing and provided a Chartered Engineer's Certificate to support this claim. During the hearing, it was highlighted that the goods after Heat Treatment were returned to the original suppliers, who paid Central Excise duty on the final products. The judgment emphasized that the job worker's charges are included in the final product, subject to Central Excise duty. It was concluded that the appellant's activity did not amount to manufacture, and since Central Excise duty was paid on the job charges, demanding Service tax under BAS would result in double taxation. The judgment referenced a notification exempting goods processed using raw materials supplied by clients and cleared on payment of Central Excise duty, supporting the exclusion of the appellant's job work from BAS.

Issue 2: Applicability of penalty
The judgment deemed the penalty imposed as unauthorized, citing Section 73(3) of the Act, which prevents penal action in certain cases. As the demand itself was found unsustainable, the question of paying interest and penalty did not arise. The appellant's argument that the penalty was imposed without legal authority was upheld, further supporting the decision to exclude the job work from BAS.

Issue 3: Correctness of demand notice
The judgment criticized the demand notice for being issued under Section 68 instead of Section 73(1) and confirmed under the same section rather than Section 73(2). This procedural error was highlighted as a factor contributing to the unsustainability of the demand.

Issue 4: Exclusion of job work from BAS
The judgment emphasized the principle of equity in tax imposition, highlighting the potential for double taxation if Service tax under BAS was applied to the appellant's job work. By considering the Central Excise duty paid on the job charges and the subsequent manufacturing process by the original suppliers, it was concluded that the appellant's job work should be excluded from BAS to avoid double taxation. The judgment referenced a relevant notification supporting this exclusion and held that the appellant was not liable to pay service tax during the period in question.

In conclusion, the appeal was allowed, setting aside the impugned order passed by the Joint Commissioner, Central Excise, Pune-II based on the detailed analysis and findings related to the issues raised in the case.

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