2014 (1) TMI 1049 - AT - Service Tax

Business Auxiliary Service - Whether the activity of appellant can be called as production of goods and further on behalf of the client - Period of Demand - Bar of limitation - Penalties under Sections 76 and 78 - Demand of service tax - Held that - detailed activity undertaken by the appellant is that in which they separate the iron metal from the molten slag - As regards the expression production of goods , we note that the same was amended in June 2005 and was substituted by the expression incineration/ shredding of bio-medical where can, by no stretch of imagination, be called as processing of goods , even if in certain cases the shredded materials may be used as filters etc. Further, the activity also does not qualify to be called as provision of service on behalf of the client. This is because the taxable activity envisaged under this category of business auxiliary service is that while the client is obliged to provide some service to a 3rd person but instead of the client providing such service, the service provider provides the such service to the 3rd person, on behalf of the client i.e. acting as an agent of the client. Admittedly, in the instant case, there is no 3rd person. Thus, the activity as undertaken does not fall under business auxiliary service or any other existing taxable services - production of goods on behalf of the client covers situations where the service provider undertakes job work for the client. In view of the amendment, production or processing (not amounting to manufacture) done either for the client or on behalf of the client would be liable to service tax - Therefore, appellant s activity prior to June 2005 cannot be held to be exigible to service tax under the category of BAS. Accordingly, we set aside the impugned order and allow the appeal with consequential relief to the appellant - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the appellant's activities amounted to the production of goods under Business Auxiliary Service (BAS).
2. Whether the appellant's activities were conducted "on behalf of the client" as per the definition of BAS.
3. Whether the demand raised was barred by limitation.

Issue-wise Detailed Analysis:

1. Production of Goods under BAS:
The demand of Rs. 2,38,97,913/- was confirmed against the appellant for the period 10.09.2004 to 28.02.2005, along with penalties under Sections 76 and 78 of the Finance Act. The appellant, a public sector undertaking, entered contracts with steel plants to recover and process scrap from slag. The Revenue argued that these activities amounted to the production of goods on behalf of the client, thereby falling under BAS. However, the appellant contended that their activities did not amount to the production of goods. They referenced a prior decision by the Commissioner of Central Excise, which held that their activities did not result in the manufacture of another final product, as it merely involved separating iron material from molten slag. This prior decision was accepted by the Revenue, implying that the activities did not constitute production. The Tribunal agreed with the appellant, noting that every production may not amount to manufacture, but every manufacturing activity involves production. Since the Commissioner previously held that the activities did not amount to manufacture, it was concluded that there was no production of goods, thus not satisfying the first criteria of BAS.

2. On Behalf of the Client:
The second criteria under BAS required the activities to be conducted "on behalf of the client." The appellant argued that their activities were undertaken directly for the steel plants and not on behalf of the steel plants for any third party. They cited various decisions where the term "on behalf of the client" was interpreted to mean that there must be three parties involved, with the service provider acting as an agent for the client. The Tribunal agreed, referencing decisions such as Auto Coats vs. CCE, Sonic Watches Ltd. vs. CCE, and Rathore Engg. Works vs. CCE, which held that activities undertaken directly for a client did not meet the criteria of being "on behalf of the client." The Tribunal also noted Board Circulars clarifying that activities involving only two parties did not fall under BAS. Consequently, the Tribunal concluded that the second criteria of BAS was not satisfied.

3. Limitation:
The appellant also argued that the demand was barred by limitation, as the Commissioner was aware of their activities due to prior show cause notices alleging cargo handling activities and manufacture of excisable goods. The Tribunal, having decided in favor of the appellant on merits, did not find it necessary to address the limitation argument.

Conclusion:
The Tribunal held that the appellant's activities prior to June 2005 did not fall under BAS and set aside the impugned order, allowing the appeal with consequential relief to the appellant. The Tribunal did not address the limitation issue, as the appeal was resolved on merits.