2018 (9) TMI 1061 - AT - Service Tax

Business Auxiliary Service - activity of powder coating and galvanization undertook by the job workers - Exemption in terms of N/N. 8/2005 - Held that - Chapter Note 4 to Chapter 73, clearly holds that in relation to products of the said chapter, the process of galvanization shall amount to manufacture . This being so, the process of galvanization will stay out of the purview of Business Auxiliary Services, because, by definition, the BAS specifically excludes the activity of manufacture. Eligibility to Notification No. 8/2005 dated 01.03.2005 as amended - Held that - An identical issue has been decided by the Mumbai Bench of the Tribunal in the case of Endurance Systems India (P) Ltd. 2014 (2) TMI 99 - CESTAT MUMBAI , where it was held that As the processes undertaken by the appellant amounts to manufacture as per the decision relied upon by the appellant as the same is part of manufacturing process. Therefore, appellants are not liable to pay service tax under the category of Business Auxiliary Service. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant is liable to pay service tax on the activity of powder coating and galvanization undertaken by job workers.
2. Whether the appellant qualifies for exemption under Notification No. 8/2005.
3. Whether the activity of galvanization amounts to "manufacture" and thus falls outside the purview of Business Auxiliary Services.

Analysis:

Issue 1: Liability for Service Tax
The appellant, a small scale industry, engaged in manufacturing fabricated cabinets for M/s. BPL Telecom Ltd., subcontracted the processes of galvanization and powder coating to job workers. The Department contended that these activities fell under "Business Auxiliary Service," making the appellant liable for service tax. However, the appellant argued that the job workers should be responsible for the service tax as they performed the coating processes. The Tribunal noted the payment flow from M/s. BPL Telecom Ltd. to the job workers through the appellant, emphasizing the issue of revenue neutrality. Ultimately, the Tribunal found in favor of the appellant, ruling that the processes of galvanization and powder coating did not constitute Business Auxiliary Services, thereby relieving the appellant of the service tax liability.

Issue 2: Exemption under Notification No. 8/2005
The Tribunal examined whether the appellant qualified for exemption under Notification No. 8/2005. It referenced Chapter Note 4 to Chapter 73, which categorizes galvanization as "manufacture." Citing a precedent from the Mumbai Bench in a similar case, the Tribunal concluded that the appellant's activities, being part of the manufacturing process and resulting in goods cleared on payment of duty, did not attract service tax under the category of Business Auxiliary Service. Therefore, the Tribunal allowed the appeal, granting the appellant consequential reliefs in accordance with the law.

Issue 3: Galvanization as "Manufacture"
The Tribunal delved into the classification of galvanization as "manufacture" and its impact on the applicability of Business Auxiliary Services. By referencing Chapter Note 4 and the precedent from the Mumbai Bench, the Tribunal affirmed that galvanization, being considered a manufacturing process, fell outside the scope of Business Auxiliary Services. This finding further supported the appellant's position and contributed to the overall decision in favor of the appellant. The Tribunal's reliance on established legal interpretations and precedents strengthened the appellant's case and solidified the judgment in their favor.

In conclusion, the Tribunal's detailed analysis and reliance on legal provisions and precedents led to the appellant's success in challenging the service tax liability on the subcontracted processes of galvanization and powder coating. The judgment clarified the exemption under Notification No. 8/2005 and affirmed the classification of galvanization as "manufacture," ultimately providing a comprehensive legal resolution to the issues raised in the case.