2014 (3) TMI 511 - AT - Service Tax

Business Auxiliary Service - bullet proofing of vehicle - Exemption Notification No. 12/2003-ST dated 01.07.2003 - element of distinct sale of goods - First model of operation - Held that - Prima facie no basis for reading down the Section 65(19). Further, whether the service aspect of the transaction which in another aspect may also amount to a sale, is within the province of the federal legislature, is an issue that should appropriately be considered at the final hearing of the appeal. Suffice to it notice for the nonce that the transaction covered by the first model, prima-facie fall outside the scope of Section 65(19). We consider it to be so since in that model of operation the petitioner purchases the vehicle and therefore become the owner and the bullet proofing value addition on such vehicles would amount to a service to self. There is no activity of processing of goods on behalf of another since the vehicles belong to the petitioner and the value addition is done to its own vehicles. - Stay granted. Second model of operation - vehicles in issue are supplied by the customer and on such vehicles bullet proofing is done by the petitioner - held that - this activity amounts production or procuring of goods on behalf of another. - It is also not clear from the order whether the petitioner furnished documentary proof in support of its claim for exclusion of the value of the goods transferred to the customer in the process of bullet proofing - stay denied for second model of operation.

Summary

Issues:
Service tax liability on 'Business Auxiliary Service' provided in two different operational models - whether service tax is applicable on consideration received from customers; whether the activity amounts to manufacturing or sale; interpretation of Section 65(19)(v) of the Finance Act, 1994; entitlement to benefits of Notification No. 12/2003 dated 01.07.2003 for exclusion of material value in processing goods.

Analysis:

1. The judgment pertains to the confirmation of a significant service tax liability against the petitioner for providing 'Business Auxiliary Service' involving bulletproofing vehicles in two operational models. The first model involves the petitioner purchasing vehicles, bulletproofing them, and then supplying to customers. The second model entails customers providing vehicles for bulletproofing by the petitioner. The service tax demand for the first model is Rs. 93,42,985/- and for the second model is Rs. 34,73,926/- for the period from April 2006 to June 2011.

2. The petitioner contests the tax liability on the grounds that no service tax is due on consideration received from customers, arguing that the activity does not amount to manufacturing and falls within the realm of sale. The petitioner also challenges the constitutionality of Section 65(19)(v) of the Act, contending that the provision should not encompass transactions of sale. The court finds no immediate reason to interpret the provision differently and defers the final decision on whether the service aspect falls under the federal legislative domain.

3. The court determines that the first operational model, where the petitioner owns and bulletproofs vehicles, does not constitute a taxable service under Section 65(19). However, for the second model, where customers provide vehicles for bulletproofing, the activity is considered as production or procurement of goods on behalf of another. The petitioner's claim for exclusion of material value under Notification No. 12/2003 is rejected by the adjudicating authority, citing unclear reasoning and lack of documentary evidence.

4. The judgment grants a waiver of pre-deposit and stay on further proceedings, provided the petitioner remits the tax component of Rs. 34,73,926/- within a specified timeline. Failure to comply would result in the rejection of the appeal. The stay application is disposed of accordingly, pending compliance with the specified conditions.