2014 (12) TMI 959 - AT - Service Tax

Waiver of pre- deposit of service tax - Job work - Business Auxiliary Service - Materials and chemicals which are used during the processing are sold to the principal - Held that - Admitted case of the appellants are that they are receiving the articles of aluminium from the principal and after undertaking certain processes which does not amount to manufacture, clear the same to the principal. As the applicants are receiving the aluminium articles from the principal, therefore, prima facie we find no merits in the contention of the appellant that the activity comes under works contract . during the argument the applicant admitted that the value of articles is approximately 60%. In view of the above as we find that the applicant failed to make a case for total waiver of pre-deposit of service tax - Partial stay granted.

Summary

Issues: Waiver of pre-deposit of service tax amounting to Rs. 18.6 lakhs based on the classification of the activity as 'works contract' or 'Business Auxiliary Service' (BAS).

Analysis:
1. The applicant contended that the activity undertaken falls under 'works contract' and not BAS, as they are processing goods on behalf of others and paying VAT. They argued that since materials and chemicals used during processing are sold to the principal, the demand for service tax is not sustainable. They also cited a previous stay order in their favor.

2. The Revenue argued that the activity does not qualify as a 'works contract' but falls under BAS as per Section 65(19) of the Finance Act, which defines BAS as any service related to processing goods for or on behalf of the client. They maintained that the demand for service tax was rightfully made.

3. The Tribunal noted that the appellants receive aluminum articles from the principal, process them without manufacturing, and then clear them back to the principal. Based on this, the Tribunal found no merit in the appellant's claim that the activity should be classified as a 'works contract.'

4. While the appellants referred to a previous stay order, the Tribunal clarified that the issue in that case was different, focusing on whether the value of transferred material should be added to the assessable value for service tax purposes.

5. During the proceedings, the appellants admitted that the value of articles processed was around 60%. Consequently, the Tribunal ruled that the appellants failed to establish a case for a complete waiver of the pre-deposit. They directed the appellants to deposit Rs. 6,00,000 within 8 weeks, with the remaining dues waived upon compliance. Recovery was stayed during the appeal's pendency.