2013 (1) TMI 164 - AT - Service Tax

Business Auxiliary Service - production or processing of goods for or on behalf of, the client - demand of service tax along with interest and penalties - assessee contested that the impugned processes amount to manufacture - Held that - Examining the processes of denting and painting undertaken by assessee such processes are carried out before the bus body was cleared out of the factory. The process are essential for completion of manufacture of bus bodies and having no reason to hold that these processes cannot be considered to be manufacturing activities within the meaning of section 2 (f) of Central Excise Act, 1944. Further going by note 6 of section XVII of Central Excise Tariff, these processes per se also are defined to be process of manufacture because these processes are essential for transforming the semi-finished bus body into a complete and finished article. Thus the argument of Revenue fails. Whether shifting of goods within the factory premises amounts to production or processing of goods for, or on behalf of, the client - Held that - Obviously the word production cannot cover shifting of goods. The word processing used in the company of production cannot be understood to cover any activity on the goods but only those activities which bring about some change in goods. These words cannot cover activities like shifting, transportation, storage etc within its scope. Shifting of waste arising in the process of manufacturing is one stage further removed from manufacturing activity. So no merit in the argument of Revenue. Exemption under notification 08/2005-ST denied - non producing evidence of duty payment - Held that - The appellant was doing these jobs within the factory of JCBL who regularly submits excise returns to the excise department which administers service tax levy also. The whole case is made out based on scrutiny of the records of JCBL Ltd & there is no effort made by the department to identify exempted clearances of JCBL Ltd. Thus there is an approach of selectively looking at the records of JCBL Ltd. At least when pointed out by the appellant, there was an onus on the department to reexamine the records, thus the exemption under notification 08/2005-ST has been denied arbitrarily.

Summary

Issues:
1. Whether the activities carried out by the appellant amount to "production or processing of goods for, or on behalf of, the client" under the definition of "Business Auxiliary Service" for which service tax is payable.
2. Whether the processes undertaken by the appellant qualify as "manufacture" under the Central Excise Act, 1944, and are excluded from the scope of Business Auxiliary Service.
3. Whether the appellant is eligible for exemption from service tax under Notification 08/2005-ST for activities not amounting to manufacture.
4. Whether the shifting of goods within the factory premises can be classified as "production or processing of goods for, or on behalf of, the client" and subject to service tax.
5. Whether the denial of exemption under Notification 08/2005-ST due to lack of evidence of duty payment by the principal manufacturer is justified.

Analysis:

1. The Revenue contended that the appellant's activities amounted to "production or processing of goods for, or on behalf of, the client," falling under Business Auxiliary Service, for which service tax was demanded. Two Show Cause Notices were issued for unpaid tax amounts. The appellant argued that the activities were incidental to manufacturing and covered under the definition of "manufacture" in the Central Excise Act, 1944, and hence excluded from the service tax liability.

2. The appellant argued that the impugned processes qualified as "manufacture" based on Note 6 of Section XVII of the Central Excise Tariff, and therefore, exempt from the definition of Business Auxiliary Service. They also claimed exemption under Notification 08/2005-ST for activities not amounting to manufacture, citing that the principal manufacturer paid excise duty on the goods produced.

3. The Tribunal examined the processes of denting and painting, concluding that these activities were essential for the completion of bus bodies' manufacture, falling under the definition of "manufacture" as per the Central Excise Act. Thus, the Revenue's argument failed concerning these processes.

4. Regarding the shifting of goods within the factory premises, the Tribunal determined that such activities did not amount to "production or processing of goods for, or on behalf of, the client." The Tribunal clarified that the term "processing" should involve changes in goods, excluding activities like shifting or transportation within the factory premises.

5. The denial of exemption under Notification 08/2005-ST due to the lack of evidence of duty payment by the principal manufacturer was deemed arbitrary by the Tribunal. They noted that the department's approach of selectively examining records without proper verification was unfair, leading to the denial of the exemption.

In conclusion, the Tribunal set aside the impugned orders and allowed the appeals, emphasizing that the appellant's activities did not fall under the definition of Business Auxiliary Service and were eligible for exemption under Notification 08/2005-ST.