2013 (9) TMI 358 - AT - Service Tax

Liability to Service Tax - Manufacturing Activity OR Services Rendered - Whether the impugned activity can be split into two - one as manufacturing by JLSL and the other as service by appellant (earlier known as PMSL) to JLSL - Whether there can be two manufacturers for the same goods - Held that - The activities under taken by the assesse during the period April 07 to Sept. 09 being a manufacturing activity carried out cannot be classified as business support service and subjected to service tax and hence the demand failed - The demand failed on account of time-bar also because all relevant facts had been disclosed to the department in time - The same activity cannot be considered as manufacturing and subjected to excise levy and at the same time considered to be a service and subjected to service tax - Revenues contention was that what JLSL was doing was manufacturing and what assesse (earlier known as PMSL) was doing was support services. In the instant case JLSL claimed to be the manufacturer and the claim was accepted by Central Excise Department and JLSL was paying excise duty - There was no scope for PMSL to claim that their activity should also be considered as manufacturing activity in respect of the same goods - In a situation where the other party (JLSL in this case) was willing to pay excise duty at the time of clearance of the goods from the factory of manufacture there was no need to adopt the procedure laid down in Notification 214/86 - The predominant activities for manufacture were done by assesse (earlier known as PMSL). All the activities done by the assesses had to be seen together and when it was so seen it was clear that they were doing manufacturing activity - The fact that they were charging separately for fixed costs and variable costs was not disclosed to the department - this aspect could not actually change the nature of the activity - Decided in favor of Assesse.

Summary

Issues Involved:
1. Liability to service tax on activities carried out by PMSL.
2. Classification of services under "Business Support Services."
3. Allegation of suppression of facts.
4. Applicability of extended period for demand.
5. Dual classification of activities as manufacturing and service.

Issue-wise Detailed Analysis:

1. Liability to Service Tax on Activities Carried Out by PMSL:
The appellant, successor to PMSL, was involved in manufacturing activities for JLSL from April 2007 to November 2010. Show Cause Notices (SCNs) were issued for service tax demands of Rs. 1,31,93,416/- and Rs. 29,02,873/- for different periods. The appellant contested the demand beyond the normal period of limitation, arguing that the activities amounted to manufacturing of excisable goods, which were not subject to service tax.

2. Classification of Services under "Business Support Services":
Revenue classified the appellant's activities under "Business Support Services" as defined in Section 65(104c) of the Finance Act, 1994. The appellant argued that the activities amounted to manufacturing, specifically excluded from service tax under "Business Auxiliary Services" defined in Section 65(19). The Tribunal noted that the same activity could not be subjected to both excise duty and service tax. The Tribunal found that the predominant activities were manufacturing, using the appellant's plant, machinery, and employees, and thus could not be classified as "Business Support Services."

3. Allegation of Suppression of Facts:
Revenue alleged suppression of facts, arguing that the appellant did not disclose the separate charges for fixed and variable costs. The appellant countered that the entire activity was disclosed to the department, including the agreement with JLSL and the change in Excise registration. The Tribunal agreed with the appellant, noting that the contract was placed before the department initially, and the separate charges did not change the nature of the activity.

4. Applicability of Extended Period for Demand:
Revenue invoked the extended period for demand, arguing that the appellant's activities were discovered only through an audit. The Tribunal found no merit in this argument, stating that all relevant facts were disclosed to the department in time. Hence, the demand for the period April 2007 to September 2009 was time-barred.

5. Dual Classification of Activities as Manufacturing and Service:
The Tribunal examined whether the activities could be split into manufacturing by JLSL and support services by the appellant. It concluded that both parties were involved in manufacturing, with the appellant's predominant activities being manufacturing. The Tribunal held that the activities could not be classified as "Business Support Services" and subjected to service tax while also being considered manufacturing for excise duty purposes.

Conclusion:
The Tribunal held that the activities undertaken by the appellant from April 2007 to September 2009 were manufacturing activities and could not be classified as "Business Support Services" for service tax purposes. The demand for this period failed on both merits and time-bar grounds. The appeal for the period 1-10-2009 to 14-11-2010 was dismissed as withdrawn.