2022 (3) TMI 105 - AT - Service Tax

Nature of activity - manufacture or service - services received from various contractors engaged in packaging of its finished goods to whom payments were made on the basis of quantity of biscuits packed during the month - Supply of Manpower Services or is a process amounting to manufacture leading to an exempt service under section 66D of the Finance Act, 1994? - HELD THAT - The amount being paid to the contractors are for the activity of packaging of biscuits into carton boxes which makes them marketable to be sold to the distributors and further to the market for consumers. By a combined reading of the meaning of the term manufacture read with the notes to chapter 19, it is amply clear that the process carried on for the packaging of biscuits into carton boxes is a process which amounts to manufacture and thus the activity carried on by the contractors in regard to the same at the premises of the Respondent has to qualify as a manufacturing process. The activity of packaging of biscuits as carried by the contractors is one amounting to manufacture and the same finds a place in negative list of services under section 66D of the Finance Act, 1994 thus making the same an exempted service from levy of service tax - CBIC Circular 190/9/2015-Service Tax dated 15.12.2015 has also explained the conditions when one service can be interpreted as manpower supply or job work. In the given case since the contractors are being paid on the basis of quantity packed and not on the basis of number of persons deployed, the same cannot partake the nature of Manpower Supply Service . Reliance is also placed on the Tribunal s decision in the case of DHANASHREE ENTERPRISES, JAI MAHARASHTRA ENTERPRISES VERSUS CCE, PUNE-I 2017 (7) TMI 762 - CESTAT MUMBAI , wherein it was held that the department could not establish that the service provided by the Appellant are of supply of manpower - In the instant case also, it is found that the department has not brought any evidence in contrary to prove that the services provided by the contractors to the Respondent are in the nature of Manpower Supply. There are no reasons to interfere with the impugned order - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Appeal against dropping demand of service tax under Reverse Charge Mechanism.
2. Determination of whether the activity by contractors is 'Supply of Manpower Services' or a manufacturing process exempt under section 66D of the Finance Act, 1994.

Issue 1:
The appeal was filed by the Revenue against the Order-in-Original dropping the demand of service tax of ?2,15,56,273 for the period 2012-13 to 2015-16. The investigation revealed non-payment of service tax under Reverse Charge Mechanism by the Respondent for services received from contractors engaged in packaging finished goods. The Commissioner held that the packaging process amounted to manufacturing exempted under section 66D of the Finance Act, 1994. The Revenue contended that Circular No. 190/9/2015-ST conditions for job work were not considered. The Respondent argued that the contractors were engaged in a manufacturing process, citing relevant judgments in their favor.

Issue 2:
The key issue was whether the activity by contractors constituted 'Supply of Manpower Services' or a manufacturing process exempt under section 66D of the Finance Act, 1994. The agreements with contractors indicated packaging of biscuits into carton boxes for marketability. The Central Excise Act defined 'manufacture' to include processes incidental to product completion, specified processes, and packaging for marketability. The Tribunal referenced a Karnataka High Court judgment supporting credit for packaging materials preserving product quality. The Tribunal concluded that the packaging activity constituted manufacturing exempt from service tax under section 66D. The Respondent's cited judgments and Circular 190/9/2015-Service Tax supported the position that the service was not 'Manpower Supply Service.'

The Tribunal analyzed the terms of the agreements, Central Excise Act definitions, and relevant case law to determine that the packaging activity by contractors constituted a manufacturing process exempt from service tax. The Respondent's reliance on judgments and Circular 190/9/2015-Service Tax was deemed appropriate, leading to the rejection of the Revenue's appeal.