2008 (7) TMI 80 - AT - Service Tax

Demands of Rs. 1,99,91,835 and 3,49,55,798 together with interest and equivalent penalties - whether the activity of producing goods for or on behalf of others attracts service tax under the category of Business Auxiliary Service (BAS) it is clear that only manufacture of goods liable to Central Excise duty, are excluded from the purview of BAS - since impugned activity does not amount to manufacture in the CEA, stay is partly granted

Summary

Issues:
1. Whether the activity of producing goods for or on behalf of others attracts service tax under Business Auxiliary Service (BAS).

Analysis:
The case involved stay petitions filed against the Order-in-Original confirming demands of service tax and penalties. The issue was whether producing goods for clients falls under BAS. The applicants argued that since they paid VAT on sales, no service tax should apply, and their activities amounted to manufacture, exempting them from service tax. They also cited Notification No. 12/2003-ST to support their exemption claim.

The Tribunal noted that the goods were produced for specific clients as per contracts and could not be sold in the open market, indicating production for clients. The activities did not qualify as manufacture under the Central Excise Act but fell under the MTP Act. The sale price included various costs, and the value for service tax was determined based on the conversion of inputs into final products. The Tribunal differentiated this case from others involving packing activity and noted the involvement of the MTP Act, a Central legislation.

The Tribunal found the Commissioner's findings reasonable, stating that the goods were produced for clients and fell under BAS. It concluded that only manufacture of goods liable to Central Excise duty was excluded from BAS. The Tribunal directed the applicants to pre-deposit a specified amount towards service tax within eight weeks, with the balance amount waived pending appeal disposal. Failure to comply would result in appeal dismissal without further notice. The final adjudication on the Commissioner's order would occur during the full hearing.