2018 (2) TMI 1897 - AT - Service Tax

Classification of services - Business Auxiliary Service or not - activity of body building on the chassis - Job-work - Department has issued the SCN alleging that the appellants are job workers and that they are liable to pay tax on the activity of buses body building on chassis. The appellants have consistently submitted that they are not job workers and are engaged in manufacture of body for motor vehicles - HELD THAT - It is clear that the activity is a manufacturing activity. The said activity cannot be treated under activity of service merely because the excisable goods manufactured are exempted from excise duty. The department has issued the show cause notice on erroneous understanding of both Central Excise law as well as Finance Act, 1994. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
Classification of activity as Business Auxiliary Service under Finance Act, 1994 for manufacturing exempted goods.

Analysis:
The case involved the appellants, manufacturers of motor vehicle parts, who had cleared two Super Deluxe Coach buses availing Central Excise duty exemption under specific notifications. The department alleged that the activity of body building on the chassis fell under Business Auxiliary Service under the Finance Act, 1994, leading to a demand for service tax, interest, and penalties. The original authority confirmed the demand, but the penalty under Section 76 was set aside by the Commissioner (Appeals), prompting the appeal.

During the hearing, the appellants argued that the department's classification of the activity as a service was incorrect since it was a manufacturing activity of excisable goods exempted from duty. They contended that the very same activity could not be treated as a service under Business Auxiliary Service when it was considered manufacturing and exempt under the relevant notifications. The department, represented by the Ld. AR, reiterated the findings in the impugned order.

Upon review of the records and submissions from both sides, the Tribunal noted that the show cause notice alleged the appellants were job workers liable to pay tax for body building on chassis. However, the appellants maintained they were not job workers but engaged in manufacturing bodies for motor vehicles, holding registration under the Central Excise Act for such activities. Section Note (5) of Chapter 87 of CETA, 1985 clarified that building a body on the chassis amounted to the manufacture of a motor vehicle.

The Tribunal concluded that the activity in question was indeed a manufacturing activity, as explicitly stated in the relevant section note. Therefore, it could not be classified as a service solely because the goods manufactured were exempt from excise duty. The show cause notice was deemed to be based on an erroneous understanding of both Central Excise law and the Finance Act, 1994. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief.

In summary, the Tribunal held that the activity of building bodies on chassis for motor vehicles was a manufacturing activity, not a service, even if the goods were exempt from excise duty. The department's attempt to levy service tax on the exempted goods was deemed erroneous, leading to the appeal being allowed with relief granted to the appellants.