2009 (11) TMI 356 - AT - Service Tax

Business Auxiliary Service- The assessee was undertaking the job work of manufacturing alcohol-based perfumes and pharmaceutical products for various input-suppliers. Demand alleging non-manufacture as products not eligible to central excide duty. Held that- view not in keeping with legislative intent underlying definition of BAS as brought out in C.B.E.&.C. Letter F.No. 249/1/2006-CX.4 dated 27.10.2008. Commissioner (Appeals) following said circular held in favour of same assessee in another order in appeal. No claim that said order allealed against. Thus the contra view presently taken set aside and assessee s appeal allowed.

Summary

Issues:
1. Whether the job work activity undertaken by the assessee constitutes a 'business auxiliary service' as defined under Section 65(19) of the Finance Act, 1994.
2. Whether the job work of manufacturing alcohol-based perfumes and pharmaceutical products for input-suppliers amounts to 'manufacture' under Section 2(f) of the Central Excise Act.
3. Whether the products in question being non-excisable goods affect the classification of the activity as 'manufacture' and 'business auxiliary service'.

Analysis:
1. The appeal was filed against the demand of service tax for providing 'business auxiliary service'. The key issue was whether the job work activity fell under the definition of 'business auxiliary service'. The appellant argued that manufacturing alcohol-based perfumes and pharmaceutical products for input-suppliers should be excluded as it amounts to 'manufacture' under Section 2(f) of the Central Excise Act. The Board's circular supported this position, and the Appellate Commissioner also ruled in favor of the assessee based on the circular.

2. The Revenue contended that the job work activity should be considered a 'business auxiliary service' as the products were not excisable under Central Excise duty. However, the Tribunal found that the Revenue's interpretation did not align with the legislative intent behind the definition of 'business auxiliary service'. The Board's circular clarified that the exclusion clause would apply even if the process amounted to 'manufacture' but did not result in excisable goods. The circular emphasized that the scope of the Central Excise Act's definition of 'manufacture' should not dictate the interpretation under the Finance Act.

3. The Tribunal upheld the Appellate Commissioner's decision, stating that if the complete process of manufacturing alcoholic beverages under a 'contract bottling arrangement' was undertaken, it would not fall under taxable service. However, activities like 'packing' or 'labeling' alone would be considered within the ambit of 'business auxiliary service'. The Tribunal set aside the Commissioner's order and allowed the appeal based on the legislative intent and the interpretation provided by the Board's circular.