2015 (10) TMI 1581 - AT - Service Tax

Liability of Service Tax for felling, conversion, debarking, collection, stacking, transportation and delivery of pulp wood from the captive plantation Revenue contends that same falls under Business Auxiliary Services Activity undertaken is of processing or manufacture? Malafide on part of assessee to supress facts of work orders Imposition of penalties pleaded by appellant to be set aside. Held That - it is not a simple case of cutting of trees and then transporting the cut and debarked wood to the premises of their client. The appellants are required to convert the cut wood into billets of specific sizes, which sizes are fit for use in the pulp plant. - the activities undertaken by them in any case amounts to processing. However, such an activity may amount to manufacture also as contested by the learned advocate. Inasmuch as the issue of manufacture was never raised before the authorities below, we deem it fit to set aside the impugned orders and remand the matters to the original adjudicating authority for the purpose of deciding on the said plea of the assessees Extended period of limitation - Held that - the Revenue, though in the context of dispute involving the Mysore Paper Mills, was aware of the fact of placing work orders upon various contractors, for extraction collection, debarking stacking of the pulp wood. From this it becomes clear that there was no malafide on the part of the contractors to suppress the fact of placement of work orders upon them - No malafides found on part of assessee. Issue of imposition of penalties in respect of demands which are within the limitation period left to Assistant Commissioner to decisde Order set aside and matter remanded back Appeal disposed in favour of Assessee.

Summary

Issues Involved:
1. Classification of activities under "business auxiliary services."
2. Applicability of service tax.
3. Limitation period for raising demands.
4. Consideration of transportation costs in service tax calculation.
5. Imposition of penalties under Section 80 of the Finance Act, 1994.

Detailed Analysis:

Classification of Activities under "Business Auxiliary Services":
The appellants, contractors for M/s Mysore Paper Mills Ltd., were engaged in felling, conversion, debarking, collection, stacking, transportation, and delivery of pulp wood. The Revenue argued that these activities amounted to providing services under the category of "business auxiliary services" as defined in Clause 19 of Section 65 of the Finance Act, specifically under "production or processing of goods for, or on behalf of, the client." The appellants contested this classification, arguing that their activities did not constitute "processing of goods" but were more akin to hired labor.

Applicability of Service Tax:
The appellants claimed that their activities, which included cutting trees, debarking, and transporting the wood, did not fall under the category of "business auxiliary services." They further argued that if their activities amounted to "manufacture" as per Section 2(f) of the Central Excise Act, they would be exempt from service tax. The Tribunal noted that the definition of "business auxiliary service" was amended effective 16.06.2004 and included "production or processing of goods." The Tribunal agreed that the activities undertaken by the appellants involved processing, as the wood was converted into billets of specific sizes suitable for the pulp plant.

Limitation Period for Raising Demands:
The appellants challenged the demands on the grounds of limitation. They argued that the extended period of limitation under Section 73 of the Finance Act could only be invoked in cases of fraud, collusion, willful misstatement, or suppression of facts. The Tribunal found no evidence of malafide intent or suppression on the part of the appellants. The Tribunal also noted that the Revenue was aware of the contracts through an order passed by the Deputy Commissioner of Central Excise regarding refund of service tax paid by M/s Mysore Paper Mills on GTA services.

Consideration of Transportation Costs in Service Tax Calculation:
The appellants argued that the contract involved two separate activities: one for felling, debarking, and cutting of trees, and the other for transportation. They contended that M/s Mysore Paper Mills had already discharged the service tax liability for the transportation services as a recipient of GTA services. The Tribunal agreed that if the appellants could establish that M/s Mysore Paper Mills had paid the service tax on transportation, the value of transportation should not be included in the service tax demand.

Imposition of Penalties under Section 80 of the Finance Act, 1994:
The appellants pleaded for the setting aside of penalties under Section 80 of the Finance Act, 1994, arguing that their case involved a bona fide interpretation of the law. The Tribunal agreed that there was no malafide intent on the part of the appellants and directed the original adjudicating authority to reconsider the imposition of penalties based on the outcome of the decision on the issue of manufacture and in light of Section 80.

Conclusion:
The Tribunal set aside the impugned orders and remanded the matters to the original adjudicating authority to decide whether the activities amounted to manufacture. If not, the appellants would be liable to pay service tax under "business auxiliary services." The demands were to be limited to the normal period, and transportation costs were to be excluded if M/s Mysore Paper Mills had paid the service tax. The issue of penalties was left to the adjudicating authority's discretion based on the final decision.