2017 (5) TMI 885 - AT - Service Tax

Packaging Activities - Liability of tax - The appellants are engaged in packing parts of tractors viz. bumpers - Held that - the respondent shown the cost and an amount of 10% for supply of goods. Since these supply involve sale with profit of 10%, the said activity cannot be covered for service tax liability - appeal dismissed - decided against Revenue.

Summary

Issues:
Service tax liability for packaging activities under Section 65(76)(b) of the Finance Act, 1994; Exclusion of value of materials supplied in the taxable value of service tax; Waiver of penalties under Section 80 of the Finance Act, 1994.

Service Tax Liability for Packaging Activities:
The dispute revolved around the service tax liability of the appellants for providing repair, maintenance, and packing services to a specific entity. The Tribunal upheld that the appellants are liable to pay service tax for the packing activities they performed, specifically packing parts of tractors, such as bumpers. The lower authorities had examined the nature of the activity in detail and concluded that no new product emerged after packing, leading to the applicability of service tax under packaging activity service. The Tribunal found no grounds to interfere with these findings, emphasizing that the legal positions had been correctly assessed, and the factual findings were uncontested.

Exclusion of Value of Materials Supplied in Taxable Value:
The Revenue contested the exclusion of the value of materials supplied by the appellants in the taxable value for service tax calculation. The Commissioner (Appeals) had examined the purchase bills and the bills raised by the respondents. It was noted that the respondents had shown the cost and an additional 10% for the supply of goods. The Commissioner held that since this involved a sale with a profit margin of 10%, it could not be considered for service tax liability. The Tribunal agreed with these findings, indicating that the activity did not fall within the scope of service tax due to the profit margin involved in the supply of goods.

Waiver of Penalties under Section 80:
Regarding the waiver of penalties under Section 80 of the Finance Act, 1994, the Commissioner (Appeals) granted the benefit of no penalty imposition to the appellants. It was determined that the appellants had a reasonable cause for their failure to deposit service tax on time due to a bona fide doubt regarding the applicability of service tax to their activities. Citing relevant judicial precedents, the Commissioner concluded that there was no malafide intent on the part of the appellants to avoid tax payment. Therefore, based on the larger bench's decision and considering the circumstances of the case, the Commissioner refrained from imposing penalties under Sections 76 and 77 of the Finance Act, 1994. The Tribunal found no merit to impose penalties based on the reasoning provided by the Commissioner, ultimately dismissing the appeal by the Revenue.

Conclusion:
The Tribunal affirmed the service tax liability for the packaging activities, agreed with the exclusion of the value of materials supplied from the taxable value, and upheld the waiver of penalties for the appellants. The appeal by the Revenue was dismissed, and the cross objection filed by the respondents against the demand for an extended period was also disposed of in favor of the respondents.