2014 (6) TMI 492 - AT - Service Tax

Demand of service tax - Business Auxiliary Services - Job work of converting rounds into handles which are a part of scaffolding - Held that - appellant had intimated the department about availment of exemption under notification no.214/86-CE and also the principal manufacturer had given an undertaking under this exemption notification to use the job work goods in the manufacture of finished products which would be cleared on payment of duty. It is clear that the department itself has accepted the appellant s activities as manufacture. Moreover subjecting the rounds to the process of cutting, bending, threading, heat treatment, shot blasting, as a result of which, a part of scaffolding item Handle emerges, would amount to manufacture. Therefore, the activity of the appellant cannot be treated as Business Auxiliary Services (production of goods not amounting to manufacture). Moreover, even if, it is treated as service, when it is not denied that the job-work goods were returned by the appellant to the principal manufacturer, the exemption under Notification No.8/2005-ST dated 1.3.2005 cannot be denied on the ground that there is no evidence that the goods produced were used by the principal manufacturer in or in relation to the manufacture of final products. In view of this, the impugned order is not sustainable. The same is set aside - Decided in favour of assessee.

Summary

Issues:
Service tax liability on job worker for providing Business Auxiliary Services to principal manufacturer.

Analysis:
The appellant, a job worker, received rounds from a principal manufacturer for processing and returned the goods without duty payment. The department alleged the appellant provided Business Auxiliary Services to the principal manufacturer and demanded service tax. The Addl. Commissioner confirmed the tax demand, penalties, and interest. The appellant claimed exemption under notification no.214/86-CE, stating the principal manufacturer used the processed goods in manufacturing final products. The Commissioner (Appeals) upheld the decision, except for setting aside some penalties. The appellant argued that their processes amounted to manufacturing, and the goods were used in the production of final products, making them eligible for exemption under notification no.8/2005-ST.

The matter was initially for a stay application but proceeded to final hearing with both parties' consent. The appellant contended that the processes undertaken constituted manufacturing and that the goods were used by the principal manufacturer in producing final products. The department defended the impugned order based on the Commissioner (Appeals) findings. The Tribunal considered both sides' submissions and reviewed the records.

The service tax demand was related to the job work done by the appellant for the principal manufacturer in converting rounds into handles, a part of scaffolding items. The Tribunal noted that the rounds underwent processes like cutting, bending, threading, and finishing, resulting in the emergence of a distinct item, the handle. The appellant had informed the department about availing exemption under notification no.214/86-CE, and the principal manufacturer had provided an undertaking to use the job work goods in manufacturing finished products. The Tribunal found that the activities of the appellant amounted to manufacturing, not Business Auxiliary Services. Additionally, even if considered a service, the exemption under Notification No.8/2005-ST could not be denied since the processed goods were returned to the principal manufacturer, and there was no evidence to suggest they were not used in manufacturing final products. Consequently, the impugned order was set aside, and the appeal, along with the stay application, was allowed.