2019 (1) TMI 1036 - AT - Service Tax

Classification of activity - manufacture or service? - process of retreading - levy of service tax - penalty - Held that - The process of retreading done by the respondent is not manufacturing process as no new product emerges but it is a process in which the pre-cured tread rubber/tread rubber is affixed on the surface of the worn-out tyres and subjecting the same to a process of curing in tyre mould using steam and this activity fall under the category of Maintenance, repairs and reconditioning service . The Division Bench of this Tribunal in the case of Udaipur Tyre Retreading Co. P. Ltd. 2015 (9) TMI 1575 - CESTAT NEW DELHI has held that the activity of retreading of tyre does not tantamount to maintenance and repair including the recondition or restoration or servicing of motor vehicles. Penalty - Held that - Since the issue relates to interpretation and there were divergent views during the relevant period, penalties set aside by invoking section 80. Appeal allowed in part.

Summary

Issues:
- Whether the activity of retreading worn-out tyres amounts to a taxable service attracting service tax liability.
- Whether the impugned order passed by the Commissioner(Appeals) holding that retreading of tyres amounts to manufacture is sustainable in law.
- Whether penalties imposed under various provisions should be confirmed.

Analysis:
1. Taxable Service Liability: The case involved the question of whether the activity of re-treading worn-out tyres of automobiles falls under the category of 'maintenance, repair, and reconditioning services' liable for service tax. The officers discovered that the respondent had not registered or paid service tax for the service provided. A show-cause notice was issued demanding payment of service tax and penalties. The Commissioner(Appeals) allowed the appeal of the assessee, holding that retreading of tyres amounts to manufacture and should not attract service tax.

2. Manufacture vs. Service Tax Liability: The Tribunal analyzed the nature of the retreading process, where pre-cured tread rubber is affixed on worn-out tyres and subjected to curing. It was determined that this activity does not result in a new marketable product, but rather falls under the category of 'maintenance, repairs, and reconditioning service.' Previous decisions, including Udaipur Tyre Retreading Co. P. Ltd., PLA Tyre Works, and a Supreme Court case, P.C. Cheriyan, were cited to support the conclusion that retreading old tyres does not amount to manufacturing, aligning with the view that the process is a service and not a manufacturing activity.

3. Penalties Imposition: Regarding the penalties imposed under various provisions, the Tribunal decided not to confirm them due to the interpretation-related nature of the issue and divergent views during the relevant period. The benefit of Section 80 was extended to the assessee, leading to the confirmation of demands but setting aside the penalties. The appeal was partly allowed, overturning the impugned order and determining that the process of retreading tyres does not amount to manufacture but falls under the category of maintenance and repair services, thereby not attracting service tax liability.

This detailed analysis highlights the key legal aspects considered by the Appellate Tribunal in the judgment, providing a comprehensive understanding of the decision and its implications for the parties involved.