2006 (9) TMI 93 - Commissioner - Service Tax

Bottling of LPG from bulk pack to cylinder packs does not amounts to production because Gas was already in existence Activity only covered under Packing Service only w.e.f. 16.6.05, not under Business Auxiliary Service Demand and penalty not imposable

Issues Involved:
1. Whether the bottling of LPG gas in cylinders constitutes "production of goods" under "Business Auxiliary Services."
2. Applicability of service tax on bottling activity prior to 16-6-2005.
3. Validity of the extended period of limitation for service tax demand.
4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Issue-Wise Detailed Analysis:

1. Whether the bottling of LPG gas in cylinders constitutes "production of goods" under "Business Auxiliary Services":
The appellants argued that the activity of refilling LPG cylinders does not result in the production of gas. The gas properties remain unchanged during the process, and thus, it cannot be considered as production. The adjudicating authority's finding that compressing and filling LPG gas in cylinders amounts to production was challenged as a mere assertion without supporting evidence. The judgment held that the process of bottling LPG gas, which involves compressing and refilling it from bulk tanks to smaller cylinders, does not constitute production of goods. Consequently, this activity cannot be classified under "Business Auxiliary Services" for the period in question.

2. Applicability of service tax on bottling activity prior to 16-6-2005:
The appellants contended that bottling is specifically covered under "Packaging Services" effective from 16-6-2005, implying that prior to this date, bottling was not subject to service tax. The judgment concurred, stating that if bottling were covered under "Business Auxiliary Services," there would have been no need to introduce it under "Packaging Services." The definition of "Packaging Services" includes bottling, which does not amount to production. Therefore, the service tax demand for bottling activities prior to 16-6-2005 under "Business Auxiliary Services" was deemed unsustainable.

3. Validity of the extended period of limitation for service tax demand:
The appellants argued that the demand for service tax beyond the normal period was time-barred and that there was no suppression of facts or intent to evade tax. The department's visit to the appellants' premises and subsequent registration under "Packaging Services" indicated transparency. The judgment agreed, noting that the appellants acted in good faith based on their interpretation of the law. The absence of fraud, collusion, or willful misstatement meant that the extended period of limitation could not be invoked, rendering the demand time-barred.

4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The appellants argued against the imposition of penalties, citing a bona fide belief in the inapplicability of "Business Auxiliary Services" and lack of intent to evade tax. The judgment held that since no service tax was recoverable, the imposition of penalties was unwarranted. The invocation of multiple penalty sections was also criticized as inappropriate. The judgment referenced the Supreme Court's decision in M/s. Amrit Foods v. CCE, supporting the view that penalties should not apply in cases of bona fide disputes over legal interpretation.

Conclusion:
The appeal was allowed, and the Order-in-Original imposing service tax and penalties was set aside. The judgment emphasized that bottling of LPG gas does not constitute production under "Business Auxiliary Services" and is instead covered under "Packaging Services" from 16-6-2005. The demand for service tax prior to this date was invalid, and penalties were not justified in the absence of intent to evade tax. The stay application was also disposed of accordingly.

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