2014 (8) TMI 620 - AT - Service Tax

Business auxiliary services - Water processing by chemical treatment - Held that - Processing of water does not amounts to manufacture inasmuch as the said activity resulted in generation of processed water, which cannot be held to be different commodity than the input, which is again water. At this stage, we find that the Revenue s contention that appellant have provided services to their client by processing of water has force and the appellants are required to be put to some terms of deposit. We accordingly, direct the applicant/appellant to deposit 50% of the duty involved within a period of six weeks from today, subject to which pre-deposit of balance amount of duty and the entire amount of penalty shall stand waived and its recovery stayed during pendency of the appeal - conditional stay granted.

Summary

Issues involved:
1. Whether the activity of chemical treatment of water amounts to manufacture or provision of services for service tax liability.
2. Whether the appellant is liable to pay service tax on the chemical treatment of water provided to the client.

Detailed Analysis:
1. The judgment dealt with the issue of whether the chemical treatment of water by the appellant constituted manufacturing activity or provision of services for service tax liability. The appellant contended that the chemical treatment of water amounted to manufacturing, thus exempting them from service tax liability. In contrast, the Revenue argued that the activity did not result in a different marketable commodity and should be considered a processing activity, leading to the confirmation of the demand. The tribunal, at a prima facie stage, disagreed with the appellant's argument, stating that the processed water generated through chemical treatment was not a different commodity from the input, which was water. Consequently, the Revenue's contention that the appellant provided services to the client through water processing was upheld.

2. The judgment further addressed the appellant's liability to pay service tax on the chemical treatment of water provided to the client. The tribunal directed the appellant to deposit 50% of the duty involved within a specified period, following which the pre-deposit of the remaining duty and the penalty amount would be waived, and the recovery stayed during the appeal's pendency. This decision was made to ensure compliance with the service tax regulations and to manage the financial obligations of the appellant while the appeal was ongoing. The tribunal set a date for verifying compliance with the deposit directive, indicating a procedural step to monitor the appellant's adherence to the payment requirements.

In conclusion, the judgment clarified the nature of the appellant's activity as a service provision rather than manufacturing, thereby establishing the service tax liability. The tribunal's directive regarding the deposit of duty and penalty aimed to balance the financial obligations of the appellant with the regulatory requirements, ensuring a fair process during the appeal proceedings.