2018 (8) TMI 32 - AT - Service Tax

Business Auxiliary Service - production of goods not amounting to manufacture and covered under Business Auxiliary Services - appellant are engaged in processing of machining, drilling, shot blasting and painting on job work basis for the principle on the semi finished casting supplied by M/s Patel Alloys - Case of the department is that since the appellant is engaged in production activity, the same is liable for service tax under the sub head of production of goods on behalf of the client under Clause (V) of Business Auxiliary Service. Held that - The appellant have carried out the processing of machining, drilling, shot blasting and painting, thereafter, the resultant product is final part of wind turbine which is a final product, hence the process under taken by the appellant, clearly falls under the category of production. The Division Bench of this Tribunal in the case of PSL Corrosion Control Services Ltd 2008 (8) TMI 72 - CESTAT AHMEDABAD held that even mere epoxy coating made on steel bars supplied by the client is amount to production and accordingly liable for service tax under Business Auxiliary Services. In the present case much more processing of machining, shot blasting, drilling were carried out in addition to painting, therefore, the activity carried out by appellant are indeed falls under production - The service of production of goods on behalf of the client was very much taxable during the impugned period, therefore, it is legally liable to service tax. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Applicability of service tax on the appellant's activities under Business Auxiliary Services.
2. Interpretation of "production" versus "manufacture" in the context of service tax.
3. Validity of prior judgments and their applicability to the present case.
4. Re-quantification of service tax demand.
5. Imposition of penalties under Section 80 of the Finance Act, 1994.

Detailed Analysis:

1. Applicability of Service Tax on the Appellant's Activities:
The appellant is engaged in machining, drilling, shot blasting, and painting on a job work basis for a principal, M/s Patel Alloys. The department argued that these activities qualify as "production of goods on behalf of the client" under Business Auxiliary Services, making them liable for service tax. The appellant contended that their activities were merely processing and not covered under this category before the amendment on 16.06.2005.

2. Interpretation of "Production" Versus "Manufacture":
The Tribunal analyzed whether the appellant's activities amounted to "production" or "manufacture." It was noted that "production" and "manufacture" are not synonymous. The term "manufacture" is defined under Section 2(f) of the Central Excise Act, whereas "production" under Business Auxiliary Services includes activities that do not amount to manufacture. The Tribunal referenced the PSL Corrosion Control Services Ltd case, which established that even activities like epoxy coating, which do not amount to manufacture, are considered production and thus taxable under Business Auxiliary Services.

3. Validity of Prior Judgments:
The appellant relied on the Gedee Weiler Pvt. Ltd case, which was a Single Member judgment, to argue their activities were not taxable. However, the Tribunal found this judgment to be per incuriam as it did not consider the PSL Corrosion Control Services Ltd decision, which was a Division Bench judgment. Therefore, the PSL Corrosion Control Services Ltd judgment prevailed.

4. Re-quantification of Service Tax Demand:
The Tribunal noted the need for re-quantification of the service tax demand. The original adjudicating authority was instructed to re-quantify the demand by allowing the benefit of Cenvat credit on coating materials and other input services. The Tribunal emphasized that the appellants should produce documentary evidence to support their claims for these benefits.

5. Imposition of Penalties:
The appellants argued that penalties should not be imposed as there was no intention to evade tax. The Tribunal found merit in this argument, noting that the Revenue was aware of the appellant's activities and did not advise them to pay service tax. Hence, the penalties were set aside under Section 80 of the Finance Act, 1994.

Conclusion:
The Tribunal upheld the impugned order, confirming that the appellant's activities fell under "production of goods on behalf of the client" and were taxable under Business Auxiliary Services. The appeal was dismissed, but the matter was remanded to the original adjudicating authority for re-quantification of the service tax demand, with penalties being set aside. The judgment was pronounced in open court on 30.07.2018.