2010 (11) TMI 3 - AT - Service Tax

Service Tax on Job Working Activity - whether the job work activity undertaken by the assessee during the period of dispute would constitute a business auxiliary service within the meaning of this service as defined under Section 65 (19) of the Finance Act, 1994 - job work of manufacturing alcohol-based perfumes and pharmaceutical products for various input suppliers. Held that manufacture and excisable goods are two independent concepts and that it is not necessary that a process amounting to manufacture within the meaning of section 2 (f) should always result in emergence of an excisable goods and vice versa - Whether a process would amount to manufacture within the meaning of section 2 (f) has to be seen independently - It is a settled law that when a definition from an Act is transposed into another Act, it is as if the said definition is physically written into the borrowing Act without any reference to the context of such definition in the Act from which it is being borrowed. It is the words of that definition, which is imported into the borrowing Act and not the scope of the first Act and the context in which such definition is used in the first Act.- it was decided that if the CBU undertakes complete process of manufacture of alcoholic beverage under the contract bottling arrangement as described above then such activity would not fall under the taxable service, namely the BAS - Decided in favor of assessee

Summary

Issues:
1. Interpretation of the definition of business auxiliary service under Section 65(19) of the Finance Act, 1994.
2. Whether job work activity undertaken by the assessee constitutes business auxiliary service.
3. Application of the exclusion clause for manufacturing activities within the definition of business auxiliary service.
4. Impact of the Board's circular on the interpretation of the legislative intent regarding business auxiliary service.

Analysis:

1. The appeal challenged the demand for Service Tax along with education cess based on the classification of the job work activity as business auxiliary service. The Hon'ble High Court's directions led to the review of the case. The appellant argued that their manufacturing activity of alcohol-based perfumes and pharmaceutical products fell outside the purview of business auxiliary service as it amounted to manufacture under the Central Excise Act. The Board's circular supported this position, as evidenced by the Appellate Commissioner's order in favor of the assessee.

2. The central question revolved around whether the job work activity qualified as business auxiliary service as defined in the Finance Act. The assessee contended that their manufacturing process did not constitute business auxiliary service due to the nature of the goods produced. In contrast, the Revenue argued that for an activity to be excluded from the service, the product should be excisable, which was not the case here. The Tribunal analyzed the legislative intent behind the definition to determine the applicability of the exclusion clause.

3. The Tribunal examined the Board's circular, which clarified the distinction between manufacturing and excisable goods. It emphasized that the process of manufacture and the emergence of excisable goods were independent concepts. The circular highlighted that even if a process amounted to manufacture but did not result in excisable goods, the exclusion clause under business auxiliary service would still apply. The Tribunal underscored that the scope of the Central Excise Act's definition of manufacture should not dictate the interpretation of the term within the Finance Act.

4. Ultimately, the Tribunal upheld the assessee's position, citing the Board's circular and the Appellate Commissioner's previous decision in favor of the same assessee. The Commissioner's order demanding Service Tax was set aside, and the appeal was allowed based on the interpretation of the legislative intent and the exclusion clause under the definition of business auxiliary service. The judgment emphasized the importance of analyzing the specific activities undertaken and their alignment with the statutory provisions to determine the tax liability accurately.