2011 (6) TMI 375 - AT - Service Tax

Business Auxiliary Service - Demand, interest and penalty - as some of the steel ingots were defective and certain grinding and annealing operations on the ingots need to be carried out to make them fit for use in the manufacture of the final products - Held that - The contention of the assessees that no service was rendered by the assessees to M/s.Facor Steel Ltd., the raw material supplier as they have only debited the cost of rectification of the defective ingots supplied by M/s.Facor Steel Ltd is acceptable. Since no service has been rendered to M/s.Facor Steel Ltd., the question of assessees being liable to service tax does not arise - Decided in favour of appellant.

Summary

Issues: Liability for service tax on rectification of defective raw materials purchased.

Analysis:
The case involved the appellants, manufacturers of steel forgings and aluminum rings, who purchased steel ingots from a raw material supplier. Some of the steel ingots were found to be defective during the manufacturing process, leading the appellants to carry out grinding and annealing operations to make them usable. The cost incurred for rectification was debited to the raw material supplier through a debit note amounting to Rs.1,61,900. The adjudicating authority demanded service tax under Business Auxiliary Service, which was confirmed along with interest and penalty. The lower appellate authority upheld the demand and penalty, prompting the appeals.

Upon hearing both parties, the Vice-President noted the contention that no service was actually rendered by the appellants to the raw material supplier. The appellants merely rectified the defective ingots supplied by the supplier, without providing any additional service. As a result, the question of liability for service tax did not arise. Consequently, the Vice-President set aside the demand, interest, and penalty, granting consequential relief by allowing the appeals. The judgment was dictated and pronounced in open court.