2024 (12) TMI 1139 - AT - Service Tax

Activity amounting to manufacture or Business Auxiliary services - appellants are engaged in processing of goods of M/s. Varroc Engineering Pvt. Ltd. on job work basis and the said conversion charges are used for doing the said activity - Extended period of limitation. Activity amounting to manufacture or Business Auxiliary services - HELD THAT - The department has produced a detailed literature about the processes undertaken by them on the raw material received from the principal manufacturer to explain that the Forged Blastings received from the principal manufacturer are being converted into Gear 4th Platina . The photographs of Forged Blasting and the Gear 4th Blatina are also placed on record. In fact, both the physical goods were also produced before the bench as sample - Though the product of the appellant is not the final product of M/s. Varroc Engineerig Pvt. Ltd. but the product sent back to the principal manufacture was no more a raw Forging Blast supplied by the principal manufacturer. Forged Blasting has converted into Gears/shafts except an outer gear cutting to be done at the end of M/s. Varroc Engineering Pvt. Ltd. in order to make them complete Gears and Shafts . But the fact remains is that after the job work done by the appellant, the Forge Blasting as no more the same. It has converted into Gear 4th Platina a distinct product known to said trade distinctly. No evidence produced by the department to falsify the same. The burden of proving the allegation was on the department itself. Thus, the processes of cutting, deburring and broaching on the raw material/Forged Blastings have laid into existence of a new product having gear teeth on its internal ring and the cutting in the centre of the product which can now readily be identified and called as Gear . Hence it is held that since any process incidental or ancillary to the completion of manufactured product also falls in the definition of manufacture (Section 2(f) of Central Excise Act, already quoted) and that the processes undertaken by the appellant have imparted change of lasting character to the raw material to the extent that a new product had come into existence with a distinguishable identity, the activity done by the appellant is such which amounts to manufacture - the order confirming the demand of service tax alleging the job work done by appellant to be Business Auxiliary Service by provided to M/s. Varroc Engineering Pvt. Ltd. is liable to be set aside. Extended period of limitation - HELD THAT - The appellant is alleged to have suppressed the value of taxable services. The entire above discussion has already held that appellant was not providing any taxable services. The question of suppression of such activity becomes absolutely redundant. Since the activity of appellant is held to be an activity amounting to manufacture, question of appellant to seek service tax registration vis- -vis rendering such activity does not arises. The allegations that ST-3 returns were not filed also becomes redundant. Thus, it has wrongly been held that non-filing of returns amounts to an act of suppression on part of the appellants. Since appellant was not liable to pay any service tax question of having intention to evade the tax payment is also not applicable - irrespective the appellant was processing the raw material as job worker but as already held above, a distinct product with distinct use and character had emerged, the job work was amounting to manufacture. Accordingly it is held that there is no act of alleged suppression on part of the appellant. The show cause notice has wrongly invoked the extended period. The order under challenge is hereby set aside - Appeal allowed.

Summary

Issues Involved:

1. Whether the activity undertaken by the appellant amounts to manufacture or not.
2. Applicability of service tax on the activity under Business Auxiliary Services.
3. Invocation of extended period of limitation for issuing the show cause notice.

Issue-wise Detailed Analysis:

1. Whether the activity undertaken by the appellant amounts to manufacture or not:

The primary issue is whether the processes carried out by the appellant on the raw material received from M/s. Varroc Engineering Pvt. Ltd. constitute 'manufacture'. The Tribunal examined the definition of 'manufacture' under Section 2(f) of the Central Excise Act, 1944, which includes any process incidental or ancillary to the completion of a manufactured product. The Tribunal referred to the Supreme Court's interpretation of 'manufacture' as a process that results in a new and distinct article with a different name, character, or use. The appellant's activity involved converting 'Forged Blastings' into 'Gear 4th Platina', a distinct product with a different character and use. The Tribunal concluded that the processes undertaken by the appellant resulted in the emergence of a new product, thereby amounting to manufacture.

2. Applicability of service tax on the activity under Business Auxiliary Services:

The department alleged that the appellant's activity was a Business Auxiliary Service, subject to service tax. However, the Tribunal noted that any service amounting to manufacture is excluded from the definition of Business Auxiliary Service under Section 65(19) of the Finance Act, 1994. For the period prior to the introduction of the negative list (2010-11 to 2011-12), the Tribunal held that the appellant's activity amounted to manufacture and was not taxable as a Business Auxiliary Service. For the post-negative list period, the Tribunal referred to Section 66D(f) of the Finance Act, which exempts services related to the manufacture or production of goods from service tax. Consequently, the Tribunal held that no service tax liability arose for the appellant for the entire period in question.

3. Invocation of extended period of limitation for issuing the show cause notice:

The Tribunal addressed the issue of the extended period of limitation, which was invoked by the department on the grounds of suppression of facts by the appellant. The Tribunal found that the appellant had not provided any taxable services, and therefore, the question of suppression did not arise. The Tribunal observed that the department had been informed of the nature of the job work, and relevant documents and samples had been provided during the investigation. The Tribunal concluded that the invocation of the extended period was unjustified, and the show cause notice was barred by time.

Conclusion:

The Tribunal set aside the order under challenge, concluding that the appellant's activity amounted to manufacture and was not subject to service tax. The appeal was allowed, and the show cause notice was deemed time-barred.