2017 (12) TMI 1382 - AT - Service Tax

Classification of services - Business Auxiliary Services or otherwise? - the services such as felling the trees, conversion, debarking, stacking of the logs, etc., provided by the contractors to M/s. MPM - manufacture - extended period of limitation - Held that - In terms of Section 65 (19) (v), production or processing of goods for, or on behalf of the client is a service falling under the category of business auxiliary service. 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 - 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. Time limitation - Held that - it is clear from above 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 mala fide on the part of the contractors to suppress the fact of placement of work orders upon them - there is no mala fide motive on the part of the contractors not to pay the service tax - extended period not invocable. As the matters are being remanded to the original adjudicating authority for considering the aspect of manufacture, we direct him to examine each and every file separately and to limit the demands, if any, to the normal period - appeal allowed by way of remand.

Summary

Issues Involved:
1. Classification of services under Business Auxiliary Services.
2. Determination of whether activities amount to production or processing.
3. Liability for service tax.
4. Applicability of extended period for demand.
5. Imposition of interest and penalties.
6. Applicability of Section 80 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services under Business Auxiliary Services:
The core issue revolves around whether the activities undertaken by the appellants, such as felling, collection, conversion, debarking, stacking, transportation, and delivery of trees, fall under the category of Business Auxiliary Services as defined under clause (v) of Section 65(19) of the Finance Act, 1994. The Tribunal examined the definition and concluded that these activities could be classified under Business Auxiliary Services if they are considered as production or processing of goods for or on behalf of a client.

2. Determination of Whether Activities Amount to Production or Processing:
The Tribunal scrutinized whether the activities performed by the appellants amounted to production or processing. It was highlighted that the appellants were not merely felling and transporting trees but also converting them into pulpwood billets of specific sizes, which involves a change in form and contour. This change was deemed sufficient to classify the activities as processing. However, the Tribunal also considered the argument that these activities could amount to manufacture, which would exempt them from service tax under Business Auxiliary Services.

3. Liability for Service Tax:
The Tribunal noted that if the activities amount to manufacture, they would fall outside the purview of service tax under Business Auxiliary Services. The Tribunal remanded the matter to the original adjudicating authority to examine whether the activities amounted to manufacture. If not, the appellants would be liable to pay service tax under the category of Business Auxiliary Services.

4. Applicability of Extended Period for Demand:
The Tribunal addressed the issue of the extended period for demand under Section 73 of the Finance Act, 1994. It was argued that the extended period could only be invoked in cases of suppression, willful misstatement, or fraud. The Tribunal found no evidence of mala fide intent or suppression by the appellants, noting that the awarding of contracts was within the knowledge of the department. Therefore, the extended period was not justified, and demands should be limited to the normal period.

5. Imposition of Interest and Penalties:
The Tribunal held that since the demand itself was under scrutiny, the imposition of interest and penalties under Sections 76, 77(1)(a), 77(2), and 78 of the Finance Act, 1994, would also be unsustainable. The Tribunal directed the original authority to re-examine the imposition of penalties in light of the findings and the provisions of Section 80 of the Finance Act, 1994.

6. Applicability of Section 80 of the Finance Act, 1994:
The Tribunal emphasized the applicability of Section 80, which provides relief from penalties if there was a reasonable cause for the failure to pay service tax. Given the absence of mala fide intent and the complexity of the issue, the Tribunal directed the original authority to consider Section 80 while deciding on the penalties.

Conclusion:
The Tribunal's judgment was comprehensive, addressing each issue with detailed reasoning. The matter was remanded to the original adjudicating authority to determine whether the activities amounted to manufacture and to re-assess the demands and penalties accordingly. The Tribunal's decision was aligned with a previous judgment on similar issues, ensuring consistency in the interpretation and application of the law.