2018 (9) TMI 580 - AT - Service Tax

Business Auxiliary Service - appellant are engaged in the activity of job work such as Grinding, Boring and Nitriding work on the goods supplied by their principal - penalty - Held that - the appellant s activity such as Grinding, Boaring and Nit Riding work on the semi finished goods supplied by their principal is amount to production even though not a manufacturing activity in terms of Section 2 (f) of the Central Excise Act, 1944. The production activity was very much covered under Sub Clause (v) of Clause (19) under Business Auxiliary Service. Therefore, during the relevant period the activity of production of goods on behalf of client was taxable - demand upheld. Penalty u/s 76 and 78 of FA - Held that - As of now it is a settled Law that penalty Under Section 76 78 cannot be imposed simultaneously. Therefore, the penalty imposed Under Section 76 is set aside - As regard, the penalty imposed Under Section 78, the adjudicating authority has not given the option of 25% penalty to the appellant in the Order in Original. The penalty reduced to 25% under the proviso to Section 78 subject to condition that total amount of Service Tax, interest and penalty of 25% stand paid within a period of one month from the date of receipt of this order. Appeal allowed in part.

Summary

Issues:
1. Whether the appellant's activity of job work such as Grinding, Boring, and Nitriding work on goods supplied by their principal is liable for Service Tax under the category of Business Auxiliary Service.
2. Whether the penalties imposed under Sections 76 and 78 are justified.

Analysis:
1. The appellant was engaged in job work activities on goods supplied by their principal without payment of Central Excise duty or Service Tax. The department contended that the appellant's activities fall under the definition of Business Auxiliary Service, specifically "production of goods on behalf of the client." The adjudicating authority and Commissioner (Appeals) upheld the demand for Service Tax. The tribunal noted that during the relevant period, the processing of goods was not covered under the definition of Business Auxiliary Service. However, the tribunal determined that the appellant's activities constituted production, falling under Business Auxiliary Service. Therefore, the demand for Service Tax was deemed legally correct for the period in question.

2. Regarding the penalties imposed, the tribunal observed that as per settled law, penalties under Sections 76 and 78 cannot be imposed simultaneously. Consequently, the penalty under Section 76 was set aside. However, with respect to the penalty under Section 78, it was noted that the adjudicating authority did not provide the option of a reduced penalty of 25% in the Order in Original. Citing a Supreme Court judgment and a relevant Board Circular, the tribunal reduced the penalty to 25% under the proviso to Section 78. The appellant was given the condition to pay the total amount of Service Tax, interest, and the reduced penalty within one month from the date of the tribunal's order.

In conclusion, the tribunal partly allowed the appeal, upholding the demand for Service Tax under Business Auxiliary Service for the appellant's production activities on behalf of the client. The penalties under Sections 76 and 78 were addressed, with the penalty under Section 76 being set aside and the penalty under Section 78 being reduced to 25% with a specified payment condition.