2020 (1) TMI 713 - AT - Service Tax

Exemption from job-work - intermediate process - services of cutting of fabric according to the pre-determined shapes, sizes, specifications as designed, on job work basis to one M/s Aero Club, who was engaged in the manufacture of readymade garments - Serial No.30 of N/N. 25/2015-S.T. dated 20 June, 2012 - HELD THAT - There is no dispute about the legal position. If the goods are the one on which appropriate duty is payable by the principal manufacturer, exemption from service tax would be available to the job worker. Though the expression used in Serial No.30(c) of the Notification is Payable and not Paid but definition 2(b) clarifies that such payable would not include nil rate of duty or duty wholly exempted. As such, the principal manufacturer is required to pay the duty on their final product so as to make the intermediate job worker exempted from payment of service tax. Admittedly the said issue is a factual issue required to be verified by the Authorities. The appellant have placed a return on record for the month of February 2013 indicating such payment of duty by the principal manufacturer - In such a view, the Adjudicating Authority is required to verify the fact of payment of duty by the principal manufacturer for the period involved in the present appeal - matter remanded to the Original Adjudicating Authority for doing the needful. Application disposed off.

Summary

Issues:
1. Whether the appellant provided services of cutting fabric to a manufacturer of readymade garments on a job work basis.
2. Whether the appellant is eligible for exemption under Serial No.30 of Notification No.25/2015-S.T.
3. Whether the principal manufacturer has discharged the duty liability on the final product.

Analysis:
1. The appellant provided services of cutting fabric to a readymade garment manufacturer on a job work basis, which led to the initiation of proceedings for a service tax demand.

2. The appellant claimed exemption under Serial No.30 of Notification No.25/2015-S.T., which pertains to carrying out an intermediate production process as job work. The appellant argued that the exemption applies if the principal manufacturer has paid the appropriate duty on the goods. The appellant contended that the principal manufacturer had indeed paid the duty, but the authorities had not verified this fact properly. The appellant submitted returns indicating duty payment by the principal manufacturer for the final product. It was emphasized that the definition of 'appropriate duty' does not include nil rate of duty or wholly exempted duty. The Tribunal noted that the issue of duty payment is factual and needs verification.

3. The Tribunal clarified that for the job worker to be exempted from service tax, the principal manufacturer must pay the duty on the final product. While the notification uses the term 'payable' instead of 'paid,' the definition excludes nil rate or wholly exempted duty. The Tribunal directed the Adjudicating Authority to verify the payment of duty by the principal manufacturer for the relevant period. The matter was remanded for further verification based on the evidence provided by the appellant.

Conclusion:
The Tribunal remanded the matter to the Adjudicating Authority for verification of whether the principal manufacturer had discharged the duty liability on the final product, as this verification is crucial for determining the appellant's eligibility for exemption under the relevant notification.