2014 (11) TMI 277 - AT - Service Tax

Packaging services - Assessee provide packaging service to fertilizer manufactured by other company - Held that - It is cleared that fertilizer cannot be marketed without packaging in the manner specified under the said order, thus packaging of fertilizer is a statutory requirement for sale of the fertilizer. We further find that sale of fertilizer in bulk requires a license to sell in bulk. As the appellant is not having any such license, therefore, packaging is a statutory requirement for sale of fertilizer by M/s Zuari Industries Ltd. If marketing of fertilizer cannot take place without packaging, the appellant is a manufacturer as per section 2(f)(i) of the Central Excise Act, 1944, wherein manufacture includes any process incidental or ancillary to the completion of a manufactured final product. - appellant being a manufacturer is doing the packaging activity and does not fall under packaging activity defined in section 65(76b) of the Finance Act, 1994. - Decided in favour of assessee.

Summary

Issues:
- Whether the appellant is liable to pay service tax for packaging services provided in relation to fertilizer manufacturing?
- Whether the packaging activity undertaken by the appellant falls under the definition of packaging services as per section 65(76b) of the Finance Act, 1994?
- Whether the packaging of fertilizer is an integral part of the manufacturing process and not a separate service activity?

Analysis:
1. The appellant was in appeal against an order confirming service tax liability for packaging services under section 65(76b) of the Finance Act, 1994. The appellant, engaged in providing packaging services for fertilizer manufacturing, argued that packaging is a statutory requirement under the Fertilizer Control Order and is integral to the manufacturing process as per the Central Excise Act, 1944.

2. The appellant contended that packaging of fertilizer is mandatory for marketing under the Fertilizer Control Order and is an essential part of the manufacturing process. The appellant relied on the definition of "manufacture" under section 2(f) of the Central Excise Act, 1944, stating that packaging is incidental to the completion of the manufactured product, and hence, their activity does not fall under the definition of packaging services as per the Finance Act, 1994.

3. The department argued that the process of packaging is not incidental to the completion of the manufactured product as the fertilizer is already complete before packaging. They claimed that no packaging is required for bulk sale of fertilizer and, therefore, the appellant's activity should be considered as a service activity falling under the definition of packaging services.

4. The Tribunal analyzed the statutory requirements under the Essential Commodity Act and the Fertilizer Control Order, emphasizing that fertilizer cannot be marketed without proper packaging. The Tribunal agreed with the appellant's argument that packaging is integral to the manufacturing process, as without packaging, the fertilizer cannot be marketed. Therefore, the Tribunal held that the appellant, being a manufacturer, is engaged in manufacturing activity and not in the provision of packaging services as defined in the Finance Act, 1994.

5. Consequently, the impugned order confirming the service tax liability was set aside, and the appeal was allowed in favor of the appellant, recognizing the packaging of fertilizer as an integral part of the manufacturing process and not a separate service activity falling under the definition of packaging services in the Finance Act, 1994.