2022 (8) TMI 539 - AT - Service Tax

Nature of activity - service or manufacture - work of segregation of cylinders, sealing of filled cylinders, de-shaping of cylinders by hydraulic pressure, spray of pesticides, disposing of collected muck/sludge, dirt, and bottling of LPG into cylinders to be sold by IOCL for the purpose of domestic use - Packaging Service - Works Contract Services - penalty - HELD THAT - On perusal of the definitions of packaging service as existed up to 30/06/2012 and the negative list entry post 30/06/2012, both the entries provide an exemption from service tax if the process amounts to manufacture. The revenue has not disputed the fact that excise duty is being paid by IOCL on clearances of gas cylinders and that the expenditure is also a part of the valuation adopted for such purposes. Since these facts are not being disputed by the Revenue, therefore it is held that the activities undertaken by the Appellant would squarely be covered under the definition of manufacture under Section 2(f) of the Central Excise Act, 1944 and thus the said demand under packaging service cannot sustain. Works Contract Services - HELD THAT - The Appellant has not disputed the demand on merits but only on limitation. The demand was raised based on audit of IOCL records. It is found that service tax is a self assessment regime and one cannot take the plea of being not paid/received service tax by the recipient. However under the peculiar circumstances of the case, it would be in the interest of justice to waive penalty by invoking the provisions under Section 80 of the Finance Act, 1994. Appeal allowed in part.

Summary

Issues: Determination of whether activities carried out by the Appellant amount to manufacturing process; Assessment of demand for payment of Service Tax and cess for specific financial years; Consideration of demand under Works Contract Services and its limitation.

Issue 1: Activities as Manufacturing Process
The Appellant's activities involved in filling LPG into cylinders were challenged as falling under the taxable category of "Packaging Service." The Appellant argued that the process of filling LPG constituted manufacturing, exempt from service tax. The Tribunal analyzed various definitions, including those from the Central Excises and Salt Act, Gas Cylinder Rules, and Factories Act. The Tribunal concluded that filling LPG into cylinders indeed amounted to a manufacturing process. The Tribunal cited a Supreme Court judgment highlighting the technical complexity and essential nature of LPG bottling as a manufacturing activity. Additionally, the Tribunal noted that IOCL paid excise duty on gas cylinder clearances, supporting the manufacturing nature of the Appellant's activities. Consequently, the demand under packaging services was deemed unsustainable.

Issue 2: Assessment of Service Tax Demand
The demand for payment of Service Tax, including cess, for the Financial Years 2010-11 to 2014-15 was contested by the Appellant. The Appellant argued for exemption based on the manufacturing nature of the activities. The Tribunal, after thorough examination of relevant legal provisions and precedents, ruled in favor of the Appellant, holding that the activities qualified as manufacturing under the Central Excise Act, 1944. Therefore, the demand for Service Tax and cess was set aside.

Issue 3: Demand under Works Contract Services
The demand under Works Contract Services was challenged by the Appellant on the grounds of limitation, without disputing the demand on merits. The Tribunal considered the circumstances, noting that the demand was based on an audit of IOCL records. While emphasizing the self-assessment nature of service tax, the Tribunal decided to waive the penalty in the interest of justice by invoking Section 80 of the Finance Act, 1994. Consequently, the Tribunal partially allowed the appeal, providing relief as per law.

In conclusion, the Tribunal's judgment clarified that the Appellant's activities constituted a manufacturing process, exempting them from the demand for payment of Service Tax and cess. The Tribunal also addressed the demand under Works Contract Services, waiving the penalty due to specific circumstances. The decision underscored the importance of considering the technical complexities and legal definitions in determining the tax implications of industrial activities.