2014 (12) TMI 494 - AT - Service Tax

Business Auxiliary Service - Penalty u/s 78 - Held that - The appellant undertake the joining of sections of rails at site by thermite welding process. The welding of section of rails which are of length of 100 Mtrs is done at site as result of which there are lesser number of gaps at every 2Km instead of at every 100 Mtrs resulting in smooth movement of train on railway tracks. In fact, the process undertaken by the Appellant is part of the process of laying down of tracks and make them fit for traffic movement as before undertaking the thermite welding process, the rails have to be precisely aligned. In our view, therefore, the activity of the appellant does not result in any deliverable goods to the railway and it cannot be said to be the production or processing of goods not amounting to manufacture. The impugned order, therefore, is not sustainable - Decided in favour of assessee.

Summary

Issues: Service tax demand on thermite welding process as Business Auxiliary Service under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994.

Analysis:
1. Issue of Service Tax Demand: The appellant, engaged in thermite welding for rail joints, faced a service tax demand under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. The department argued that the process constituted production or processing of goods not amounting to manufacture, attracting service tax. A demand of Rs. 50,32,293 was raised, leading to an adjudication by the Commissioner who confirmed a demand of Rs. 26,09,242, dropped Rs. 24,29,051, imposed interest, and a penalty under Section 78 of the Finance Act, 1994. The appellant challenged this order through an appeal.

2. Arguments and Submissions: The appellant's counsel contended that since the rails were joined at the site, no goods emerged for delivery to the Railways, thus the process did not amount to production or processing of goods not amounting to manufacture. On the other hand, the Departmental Representative defended the order, asserting that the process resulted in longer rail sections, constituting production of goods not amounting to manufacture, thereby attracting service tax.

3. Judgment and Analysis: The Tribunal considered the submissions and records. It noted that the appellant's activity of thermite welding was essential for laying down tracks and ensuring smooth train movement by reducing gaps. The process did not yield deliverable goods to the railway but was a crucial part of track laying. Consequently, the Tribunal held that the appellant's activity did not amount to production or processing of goods not amounting to manufacture. Therefore, the impugned order was deemed unsustainable, set aside, and the appeal was allowed.

This detailed analysis highlights the core issue of the service tax demand on the thermite welding process, the arguments presented by both sides, and the Tribunal's reasoning leading to the judgment in favor of the appellant.