2022 (8) TMI 62 - AT - Service Tax

Recovery of service tax alongwith Interest and penalty - Business Auxiliary services - job of bottling, blending and labeling of Indian made Foreign Liquor (IMFL) in their work premises - Circular dated 27.10.2008 issued by Central Board of Excise Customs - HELD THAT - From the definition of Business Auxiliary Service as contained in Section 65/95 of the Finance Act, 1994 as amended any process which amounts to manufacture in terms of Section 2(f) of Central Excise Act has been excluded from the definition of Business Auxiliary Service - Since in view of the Circular Ld.Commissioner has held that the processes undertaken would not amount to a taxable service under the category of Business Auxiliary Service . In para 9 (b) after examining the agreements entered by the Appellant with the prime manufacturer, Ld.Commissioner has observed that HTB has raised bills of different charges/expenses such as bottling charges, manufacturing charges etc. incurred by them for production of IMFL on behalf of clients and have been paid also. There are no reason to differ with the conclusions arrived at by the Ld.Commissioner. Nothing has been stated by the Revenue while filing this Appeal - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Recovery of Service Tax including Education Cess.
2. Recovery of Interest under Section 75 of the Finance Act, 1994.
3. Imposition of Penalty under Sections 76, 77, and 78 of the Finance Act, 1994.
4. Classification of activities under 'Business Auxiliary Service' or 'Manufacture'.

Issue-wise Detailed Analysis:

1. Recovery of Service Tax including Education Cess:
The primary issue was whether the activities of blending, bottling, and labeling of Indian Made Foreign Liquor (IMFL) performed by the respondent constituted a 'Business Auxiliary Service' under Section 65(19) of the Finance Act, 1994, or if it was excluded as 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The Revenue argued that these activities did not amount to 'manufacture' and hence were liable for Service Tax. However, the Commissioner, relying on the Board's Circular No. 249/1/2006-CX.4 dated 27.10.2008, concluded that these activities did amount to 'manufacture' as they resulted in a new product with a distinct name, character, or use, and hence were excluded from 'Business Auxiliary Service'. Consequently, the demand for Service Tax was dropped.

2. Recovery of Interest under Section 75 of the Finance Act, 1994:
Since the primary demand for Service Tax was dropped, the question of recovering interest under Section 75 did not arise. The Commissioner's order did not address this separately as the foundational premise of Service Tax liability itself was negated.

3. Imposition of Penalty under Sections 76, 77, and 78 of the Finance Act, 1994:
Similar to the interest recovery, the imposition of penalties under Sections 76, 77, and 78 was contingent on the determination that the activities were liable for Service Tax. With the activities being classified as 'manufacture', the penalties for contraventions of the Finance Act, 1994 were also not applicable. The Commissioner, therefore, did not impose any penalties.

4. Classification of Activities under 'Business Auxiliary Service' or 'Manufacture':
The core of the dispute revolved around the classification of the respondent's activities. The Revenue contended that the activities did not constitute 'manufacture' as defined under Section 2(f) of the Central Excise Act, 1944, and thus fell under 'Business Auxiliary Service'. The Commissioner, however, found that the activities resulted in the production of a new product (IMFL) and hence amounted to 'manufacture'. This conclusion was supported by the Board's Circular which clarified that even if the resultant product (IMFL) was non-excisable, the process still qualified as 'manufacture'. The Commissioner's reliance on the Circular and the detailed examination of the agreements and processes led to the conclusion that the activities were not taxable under 'Business Auxiliary Service'.

Conclusion:
The Tribunal upheld the Commissioner's order, agreeing that the activities performed by the respondent amounted to 'manufacture' and were thus excluded from the ambit of 'Business Auxiliary Service'. Consequently, the appeal filed by the Revenue was dismissed, affirming that no Service Tax, interest, or penalties were recoverable from the respondent.

Pronouncement:
The judgment was pronounced in the open court, dismissing the Revenue's appeal.