2014 (5) TMI 338 - AT - Service Tax

Business Auxiliary Service - Job work - manufacturing activity or not - packing operations in the factory premises - cleaning and testing of empty tin containers, affixing of lebels on the containers and thereafter filling up and sealing of the same - Held that - There is no dispute about the fact that the appellant, as per their contract with M/s. Kirti Industries Limited, are engaged in the activity of vacuum cleaning of the tin containers, filling up of the same with oil and sealing and their labelling. This activity is performed by the appellant in the factory of M/s. Kirti Industries Limited. The show cause notice has been issued on the basis that the appellant s activity is auxiliary or incidental to production of goods and hence is covered by the definition of Business Auxiliary Service taxable w.e.f. 16-5-2005 and would be liable to service tax. On perusal of the impugned order-in-original, it is seen that the appellant s activity has been looked at in isolation ignoring the fact that it is part of manufacture of vegetable oil by solvent extraction process by M/s. Kirti Industries Limited. When M/s. Kirti Industries Limited manufacture oil by solvent process and only the job of cleaning up the tin containers, packing of oil and their sealing and labelling has been given to the appellant and this job has been performed by the appellant in the factory of M/s. Kirti Industries Limited and when in terms of Chapter Note 5 of Chapter XV, the packing from bulk to retail pack, labelling and relabelling of the goods of heading 1507 would amount to manufacture, the process undertaken by the appellant would amount to manufacture and if the process is manufacture, the same would not be service. However, we find that this aspect has not been examined either in the order-in-original or in the impugned order-in-appeal. In fact, in the impugned order-in-appeal, the Commissioner (Appeals) has observed that the services being provided by the appellant are procurement of goods or services, while the show cause notice mention the services provided by the appellant as ancillary or incidental to production of goods. In view of this, the impugned order is not sustainable. The same is set aside and matter is remanded to the original authority for de novo adjudication after hearing the appellant. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the appellant's activity of packing oil in tin containers amounts to Business Auxiliary Service attracting service tax.
2. Whether the activity undertaken by the appellant can be considered as manufacturing under Chapter Note 5 of Chapter XV of the Central Excise Tariff.

Analysis:

Issue 1:
The case involved a dispute regarding the applicability of service tax on the appellant's activity of packing oil in tin containers. The department argued that this activity falls under Business Auxiliary Service, attracting service tax. The Assistant Commissioner confirmed a service tax demand against the appellant, along with penalties. The Commissioner (Appeals) upheld the decision and imposed additional penalties under Section 76 of the Finance Act, 1994. However, the Tribunal found that the appellant's activity should be considered as a part of the manufacturing process of vegetable oil by solvent extraction. The Tribunal noted that the impugned order failed to consider this aspect and remanded the matter for fresh adjudication, emphasizing the need to determine whether the appellant's process amounts to manufacturing before applying the definition of Business Auxiliary Service.

Issue 2:
The appellant argued that their activity of packing oil from bulk to retail packs and labeling should be considered as manufacturing under Chapter Note 5 of Chapter XV of the Central Excise Tariff. This argument was based on the contention that such activities amount to manufacture as per the tariff provisions. The Tribunal agreed with this argument, highlighting that the impugned order did not adequately address this aspect. The Tribunal emphasized the need to examine whether the appellant's activities qualify as manufacturing under the relevant tariff provisions before determining their liability for service tax. Consequently, the Tribunal set aside the impugned order and remanded the matter for fresh adjudication to consider whether the appellant's activities amount to manufacturing, which would exempt them from service tax liability.

In conclusion, the Tribunal's judgment focused on clarifying the classification of the appellant's activities as either manufacturing or Business Auxiliary Service for the purpose of determining their liability for service tax. The decision highlighted the importance of considering the specific provisions of the Central Excise Tariff in such cases and emphasized the need for a thorough examination of the manufacturing aspect before applying service tax provisions.