2018 (8) TMI 1287 - AT - Service Tax

Nature of activity - manufacture or service - activity of strapping wire rod mill products of Visakhapatnam Steel Plant (VSP) - process amounting to manufacture or Business Auxiliary Services - It is alleged that the appellant had not obtained registration for the business auxiliary services and thereby contravened Rule 4 of Service Tax Rules, 1994 r/w section 64 of the Chapter V of Finance Act, 1994. Held that - Merely strapping the wire rod mill products does not bring into existence a new distinct commodity. It is more in the nature of packing the products manufactured by their client - there is no force in the arguments of the appellant that they are excluded from the definition of business auxiliary services by virtue of the proviso to the definition. The activity of the appellant of strapping the wire rod mill products of their client in the factory of the client with the material supplied by the client, so that the client can, in turn, clear the goods on payment of excise duty, is squarely covered by Notification No.8/2005-ST and therefore they are not liable to pay service tax under the head of business auxiliary services - As no service tax is leviable, the question of interest and penalties also does not arise. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the activity of strapping wire rod mill products amounts to "manufacture" or falls under "business auxiliary services" for service tax liability.
2. Whether the appellant is eligible for exemption under Notification 8/2005-ST.
3. Whether the appellant is liable to pay service tax, interest, and penalties.

Analysis:
1. Issue 1 - Activity Classification:
The appellant argued that strapping wire rod mill products is incidental to manufacturing and should be considered as manufacture under the Central Excise Act, excluding them from service tax liability. They also claimed their activity falls under a composite works contract or is exempt under Notification 8/2005-ST. The department contended that strapping does not constitute manufacture and the appellant is liable for service tax under business auxiliary services. The tribunal held that the strapping activity, while part of the production process, does not create a new marketable product, akin to packing, and does not qualify as manufacture. The appellant's argument of exclusion was rejected, and they were found liable under business auxiliary services.

2. Issue 2 - Exemption Claim:
The appellant sought exemption under Notification 8/2005-ST, which exempts the production of goods using client-supplied materials. The tribunal found that the appellant's strapping activity, using materials supplied by the client for excise duty clearance, aligns with the notification's conditions. Therefore, the appellant was deemed not liable for service tax under business auxiliary services due to the exemption, leading to the dismissal of interest and penalties.

3. Issue 3 - Service Tax Liability:
The department argued that the appellant failed to pay service tax, obtain registration, and file returns, justifying penalties. The tribunal's decision on the classification and exemption rendered the appellant not liable for service tax, thereby negating the need for interest and penalties. The appeals were allowed, absolving the appellant from the service tax obligations.

In conclusion, the tribunal ruled in favor of the appellant, determining that their strapping activity did not amount to manufacture but fell under the exemption provided in Notification 8/2005-ST, relieving them of service tax liability, interest, and penalties.