2013 (5) TMI 451 - AT - Service Tax

Benefit of Notification No.8/2005 denied - as per department appellant should have discharged service tax on the electroplating cost including the cost of electroplating materials used by the appellant - whether electroplating of electrical contacts by the appellant amounts to manufacture or not? - service tax demand confirmed - Held that - As decided in Modison Metal Refiners vs. Commissioner 1996 (9) TMI 289 - CEGAT, NEW DELHI the process undertaken by the appellant amounts to manufacture and therefore they are not liable to pay service tax in view of the specific exclusion in the definition of business auxiliary service which provides that if the process amounts to manufacture, no service tax would be liable to be paid. In this case, the 100% EOU viz., M/s. Tyco Electronics to whom the appellants have supplied the goods on job work basis is eligible for exemption Notification No.24/2003-CE dated 31.3.2003. Stand of the department that this notification exempts 100% EOU from payment of duty and therefore the appellant is not eligible for the benefit of Notification No.8/2005-ST is not acceptable as this is not an unconditional exemption notification. Exemption is available only if the goods are not brought to any other place in India. Since exemption under Notification No.24/2003 is not an unconditional exemption, the appellant has a case for eligibility for exemption under Notification No.8/2005 also even if it is assumed that the process does not amount to manufacture. In favour of assessee.

Summary

Issues:
1. Whether the electroplating process undertaken by the appellant amounts to manufacture.
2. Whether the appellant is eligible for exemption under Notification No.8/2005-ST.

Analysis:
1. The appellant, engaged in manufacturing electric and electronic goods, also undertakes electroplating of connector components for a client. The department demanded service tax on the electroplating cost, claiming it as a service. The appellant argued that electroplating amounts to manufacture, citing a Tribunal decision and Section 16 of the Central Excise Tariff Act. The Tribunal agreed, holding that the process imparts special qualities to the goods, making it a form of manufacture. As a result, the appellant was not liable to pay service tax under the exclusion in the definition of business auxiliary service.

2. The appellant also sought exemption under Notification No.8/2005-ST, which provides exemption if the goods are used by the principal manufacturer or for further manufacture of dutiable goods. The Notification excludes goods attracting nil rate or full exemption of excise duty. The appellant supplied goods to a 100% EOU client eligible for exemption under another notification. The Tribunal noted that the client's exemption was conditional, as goods brought to other places in India were not exempt. Therefore, the appellant was eligible for the benefit of Notification No.8/2005-ST, even if the electroplating process was not considered as manufacture.

In conclusion, the Tribunal allowed the appeal, finding in favor of the appellant on both grounds. The appellant was not liable to pay service tax due to the manufacturing nature of the electroplating process and was eligible for exemption under Notification No.8/2005-ST. Other issues like limitation and penalty were not considered due to the favorable findings on the main issues.