2015 (6) TMI 659 - AT - Service Tax

Business Auxiliary service - Job work - Manufacture - process of converting Para Nitro Cumene, in to Para Cumidine - Held that - Both the lower authorities have wrongly concluded that the processing activity undertaken by the appellant does not amount to manufacture for more than one reason. Firstly, it is undisputed that the goods or inputs were received by the appellant from the principal manufacturer under job work-challan as per the provisions of Rule 4(5)(a) of the CENVAT Credit Rules. The said sub-rule mandates for movement of duty paid inputs on which CENVAT credit is availed, for further processing in to intermediate product outside the factory premises and receiving them back for further consumption. We find from records that the principal manufacturer had clearly intimated the Department as to the intention of getting the part of the process done from the appellant. This activity of processing in the appellant s factory premises is definitely an activity of manufacture inasmuch as, the finished goods coming into existence after processing are different from the inputs which are put into use. When there is a chemical reaction involved, the finished goods coming after the chemical reaction cannot be said to have been not manufactured. We perused the chemical formula and the properties of the inputs and of the final goods and we find that there is a difference between the two which would mean that the finished goods Para Cumidine is arising out of a manufacturing process. In our considered view, the activity undertaken by the appellant would amount to manufacture even if it is under a job-work procedure. - impugned order is unsustainable and liable to be set aside - Decided in favour of assessee.

Summary

Issues:
- Whether the activity undertaken by the appellant amounts to manufacture for the purpose of service tax liability under 'Business Auxiliary Services'?
- Whether the processing activity by the appellant qualifies as manufacture under the Central Excise Act, 1944?

Analysis:

Issue 1:
The appeal challenged an Order-in-Appeal regarding service tax liability on job-work charges received by the appellant. The Revenue contended that the consideration received for job-work carried out by the appellant falls under 'Business Auxiliary Services' attracting service tax liability. The appellant argued that the job-work amounted to manufacture, thus exempting it from service tax liability. The lower authorities upheld the service tax demand, prompting the appeal.

Issue 2:
The core question was whether the processing activity by the appellant constituted manufacture. The appellant converted 'Para Nitro Cumene' into 'Para Cumidine' through a chemical process. The Revenue argued that the appellant was processing goods on behalf of clients without discharging Central Excise duty, justifying the service tax liability. However, the appellant contended that the conversion process amounted to manufacture, supported by the chemical formula differences between inputs and finished goods.

The Tribunal analyzed the submissions and facts, emphasizing that the conversion process involved a chemical reaction resulting in distinct finished goods used by the principal manufacturer. The lower authorities erred in concluding that the activity did not amount to manufacture. The Tribunal noted that the process met the criteria of 'manufacture' under the Central Excise Act, as the finished goods differed from the inputs and were further utilized in manufacturing. Therefore, the Tribunal set aside the impugned order, ruling in favor of the appellant and allowing the appeal.

Overall, the judgment clarified the distinction between processing and manufacturing activities, highlighting the significance of chemical reactions and product differentiation in determining manufacturing status for tax purposes.