2018 (8) TMI 253 - AT - Service Tax

Business Auxiliary Services - various services - Benefit of N/N. 08/2005 of 1st March, 2005 - whether the activities of the respective appellant are classifiable as business auxiliary service or as manufacture? - Whether the appellant is entitled for the benefit of exemption N/N. 6/05 dated 1st March, 2005? Held that - In the present case, no doubt the raw-material in question has undergone the simple process of cutting of angles, punching of angles, notching, bending, drilling etc. but the fact remains is that those activities are being carried out with the sole objective of those raw-material to be customised into a particular shape and size, even in terms of the location of hole/punch there upon, to suite the design, specification of the final product that is the transmission tower in hand. The processes undertaken by the appellants on the raw-material provided to them by L & T in L & T s own premises are nothing but the processes to convert the said raw-material into a customized part of the whole transmission tower and as such, the activity of the appellants is incidental/ ancillary to the completion of the manufactured product and thus, falls under Section 2 f (i) of Central Excise Act, 1944 - It is clear that it includes the activity which is production or processing of the goods for or on behalf of the client but does not include any activity that amounts to manufacture of excisable goods. Benefit of exemption N/N. 6/05 dated 1st March, 2005 - Held that - It is an admitted fact that M/s. L & T had been performing further manufacturing activities on the semi finished goods processed by the appellants and have been clearing those goods on payment of duty as well as under the exemption Notification without payment of duty. The appellants have failed to provide the gross aggregate value received by them from M/s. L & T even before the first Appellate Authority. Resultantly, the authority has rightly denied the benefit of exemption N/N. 06/05 to the appellants - With respect to granting the benefit of exemption N/N. 08/2005-ST dated 1st March, 2005 also, there is no infirmity in the impugned order. The impugned activity is manufacture - Benefit of N/N. 08/2005 of 1st March, 2005, is confirmed, however, denying the benefit of N/N. 06/2005 dated 01.03.2005 - appeal allowed in part.

Summary

Issues Involved:
1. Classification of activities as Business Auxiliary Service (BAS) or Manufacture.
2. Entitlement to the benefit of exemption Notification No. 6/2005 dated 1st March, 2005.

Issue-wise Detailed Analysis:

1. Classification of Activities as Business Auxiliary Service (BAS) or Manufacture:

The primary issue was whether the activities performed by the appellants, such as cutting, punching, numbering, notching, marking, drilling, debarring, and getting inspected through QA, constituted manufacturing or were merely Business Auxiliary Services (BAS) under Section 65(19) of the Finance Act, 1994.

The Tribunal examined the definition of BAS, which includes "production or processing of goods for, or on behalf of, the client" but excludes any activity that amounts to the manufacture of excisable goods. The definition of "manufacture" under Section 2(f) of the Central Excise Act, 1944 was also considered, which includes any process incidental or ancillary to the completion of a manufactured product.

The Tribunal referred to various judgments, including the Supreme Court's rulings in Collectorate, Central Excise Mumbai vs. S.D. Chemicals Private Limited and Brakes India Limited vs. Superintendent of Central Excise, which emphasized that processes resulting in a new, distinct commodity constitute manufacturing. The Tribunal also relied on the Larger Bench decision in Mahindra & Mahindra Ltd. vs. CCE, Aurangabad, which held that fabrication activities resulting in distinct marketable goods amount to manufacture.

The Tribunal concluded that the appellants' activities, which customized raw materials into specific shapes and sizes for the final product (transmission towers), were incidental or ancillary to the completion of a manufactured product. Therefore, these activities qualified as manufacturing under Section 2(f)(i) of the Central Excise Act, 1944, and did not fall under BAS as defined in Section 65(19) of the Finance Act, 1994.

2. Entitlement to the Benefit of Exemption Notification No. 6/2005:

The second issue was whether the appellants were entitled to the benefit of exemption Notification No. 6/2005 dated 1st March, 2005, which exempts taxable services up to a certain aggregate value.

The Tribunal noted that the appellants failed to provide evidence of the aggregate value of taxable services received from M/s. L&T. Consequently, the benefit of this notification was denied by the adjudicating authority and confirmed by the Commissioner (Appeals). The Tribunal upheld this denial, agreeing that the appellants did not meet the burden of proof required to claim the exemption.

However, the Tribunal confirmed the benefit of exemption Notification No. 08/2005-ST dated 1st March, 2005, which was already granted by the adjudicating authority.

Conclusion:

The Tribunal partly allowed the appeals, holding that the appellants' activities constituted manufacturing and not BAS. The benefit of Notification No. 08/2005-ST was confirmed, but the denial of the benefit of Notification No. 06/2005 was upheld due to the lack of evidence provided by the appellants regarding the aggregate value of taxable services. The orders under challenge were set aside to the extent that they classified the activities as BAS and confirmed the demands based on that classification. Consequential benefits were directed to follow.