2015 (4) TMI 646 - AT - Central Excise

Job work - manufacture of fastners required bright wire rods out of bright bars - manufacturing activity or taxable services - Business Auxiliary Services - Rods used for manufacture of their finished products - Manufacturing activity or not - Held that - M/s Juneja Bright Steels Pvt. Ltd. (Job worker) had obtained service tax registration treating their activity as Business Auxiliary Services, that is production of goods not amounting to manufacture and were paying service tax on the job charges and were also filing ST-3 return. Thus, it cannot be denied that the activity of M/s Juneja Bright Steels Pvt. Ltd. was known to the Department and the Department at that time was accepting the service tax from them. In view of this, just because subsequently the Department takes the view that the activity of M/s Juneja Bright Steels Pvt. Ltd amounts to manufacture and the bright wire rods manufactured by them would attract Central Excise duty, M/s Sundram Fasteners Ltd. cannot be accused of receiving the wire rods with knowledge that the same were non-duty paid and liable for confiscation. - prima facie view that the imposition of penalty on M/s Sundram Fasteners Ltd. under Rule 26 (1) is not sustainable and as such they have strong prima facie case in their favour. The requirement of pre-deposit of penalty by M/s Sundram Fasteners Ltd. for hearing of their appeal is, therefore, waived and recovery thereof is stayed. - Stay granted.

Issues:
1. Duty exemption under Notification No. 50/03-CE for manufacturing fasteners in Uttarakhand.
2. Classification of activity by M/s Juneja Bright Steels Pvt. Ltd. as Business Auxiliary Services.
3. Dispute regarding the imposition of Central Excise duty on bright wire rods manufactured by M/s Juneja Bright Steels Pvt. Ltd.
4. Duty demand, interest, and penalties imposed on M/s Juneja Bright Steels Pvt. Ltd. and M/s Sundram Fasteners Ltd.
5. Appeals filed against the orders of the Additional Commissioner and Commissioner (Appeals).
6. Stay application filed by M/s Sundram Fasteners Ltd. for waiver of pre-deposit of penalty.

Analysis:
1. M/s Sundram Fasteners Ltd. availed full duty exemption under Notification No. 50/03-CE for manufacturing fasteners in Uttarakhand. They imported bright bars and sent them to M/s Juneja Bright Steels Pvt. Ltd. for conversion into wire rods on a job work basis. The dispute arose when the Department considered the activity of M/s Juneja Bright Steels Pvt. Ltd. as manufacturing, subjecting the bright wire rods to Central Excise duty under Chapter note of Section XV.

2. M/s Juneja Bright Steels Pvt. Ltd. treated their activity as Business Auxiliary Services, paying service tax on job charges under Section 65 (105) (zzb) of the Finance Act, 1994. The Department's subsequent view that their activity amounted to manufacture led to duty demands, interest, and penalties being imposed on them and M/s Sundram Fasteners Ltd.

3. The Department imposed duty demand, interest, and penalties on M/s Juneja Bright Steels Pvt. Ltd. under the Central Excise Act, 1944. The Commissioner (Appeals) upheld these orders, leading to appeals being filed. M/s Sundram Fasteners Ltd. filed a stay application for waiver of pre-deposit of penalty.

4. During the hearing, M/s Sundram Fasteners Ltd. argued that they were not aware of any duty evasion by M/s Juneja Bright Steels Pvt. Ltd. and should not be penalized. The Department opposed the stay application, citing the Commissioner (Appeals)'s findings.

5. The Tribunal considered the submissions and records, noting that M/s Sundram Fasteners Ltd. sent imported bright bars to M/s Juneja Bright Steels Pvt. Ltd. for conversion into wire rods. The Department acknowledged that M/s Juneja Bright Steels Pvt. Ltd. paid service tax as Business Auxiliary Services, indicating their activity was known and accepted. Therefore, M/s Sundram Fasteners Ltd. could not be penalized for receiving non-duty paid goods knowingly.

6. The Tribunal found no evidence of M/s Sundram Fasteners Ltd.'s involvement in any contravention, leading to the waiver of the penalty pre-deposit requirement and a stay on its recovery. The stay application was allowed, providing relief to M/s Sundram Fasteners Ltd.

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