2018 (12) TMI 1190 - AT - Service Tax

Nature of activity - Job work - service or manufacture? - appellants received worn out threaded die rolls from their customers for rework/remanufacturing/reconditioning - Revenue officers are of the view that the process that is undertaken by the appellants on worn out threaded die rolls is not a manufacturing activity - Held that - The activity is undertaken by them on various worned out die rolls received back from their customers which would mean that the process undertaken by them would not result in a new and distinct product in order to state that it is a manufacturing activity - the activity undertaken by the appellant cannot be considered as a manufacturing activity and the Finance Act will apply and appellant is required to discharge the service tax liability under maintenance or repair services. Time limitation - Held that - The appellants have kept the department informed about their activity of reprocessing or reconditioning of the said threaded die rolls. Hence, the demand within the period of limitation from the date of the show-cause notice in these two appeals are only sustainable and the demands beyond the period of limitation are unsustainable and liable to be set aside. The demands raised within the limitation from the date of show-cause notice are upheld along with interest as also penalties and the demands which are raised beyond the period of limitation are set aside - interest and penalties also set aside - appeal allowed in part.

Summary

Issues Involved:
Manufacturing activity vs. maintenance and repair services
Tax liability on labour charges for rework/remanufacturing
Applicability of Section Note 6 of Section XVI of CETA
Limitation period for demands beyond two years

Analysis:

Manufacturing Activity vs. Maintenance and Repair Services:
The appellants, engaged in manufacturing threaded die rolls, received worn-out rolls for rework. Revenue officers claimed the rework process was not manufacturing but maintenance/repair, making labour charges taxable. Appellants argued the rework constituted manufacturing under Section Note 6 of CETA. However, the tribunal held the rework did not create a new product, thus not qualifying as manufacturing. Consequently, the appellants were liable for service tax under maintenance/repair services.

Tax Liability on Labour Charges for Rework/Remanufacturing:
The appellants contended that the rework on worn-out die rolls amounted to manufacturing, justifying exemption from service tax. However, the tribunal disagreed, stating that the rework did not result in a distinct product, making the labour charges taxable under maintenance and repair services.

Applicability of Section Note 6 of Section XVI of CETA:
The appellants argued that Section Note 6 of Section XVI of CETA applied to their case, supporting their claim of manufacturing activity. The tribunal ruled that this section only pertained to incomplete or unfinished goods, not applicable to the finished threaded die rolls being reworked due to wear and tear.

Limitation Period for Demands Beyond Two Years:
Two appeals were found to be time-barred as the appellants had informed Revenue Authorities about the rework activity within the limitation period. The tribunal held that demands beyond the two-year limitation were unsustainable and set them aside, along with related interest and penalties.

In conclusion, demands within the limitation period from the show-cause notice were upheld, along with associated interest and penalties. Demands exceeding the two-year limit were set aside, including interest and penalties. The appeals were disposed of accordingly.