2018 (10) TMI 34 - AT - Service Tax

Business Auxiliary Service - it appeared to the department that appellants are involved in the activity of production of goods on behalf of the clients on which service tax is required to be paid - N/N. 8/2005-ST dt. 1.3.2005 - Held that - It is evident that till verification done on 11.09.2006 by the department the appellants were not discharging any duty or tax liability on the activities carried out by them. It is not disputed that they were doing job work such as machining drilling milling etc. on the goods received under cenvat challans from Magna Electro Castings Ltd. It is also evident that only after the verification action by the department started the appellant had filed the first return on 24.10.2006 claiming exemption under Notification No.8/2005-ST dt.01.03.2005. Mere allegation against Magna Electro Castings Ltd. that too in passing in para 10.5 of the SCN dt.15.05.2008 and in para-2 of the SCN dt. 16.10.2008 cannot be taken as a bulwark for initiating proceedings against their job workers the appellants herein. The activities carried out by the appellant will indeed amount to manufacture for the purpose of Section 2(f) of the Central Excise Act, 1994 and in consequence the same will not be a Business Auxiliary Service under Section 65 (19) of the Finance Act 1994 and therefore no service tax liability will arise in consequence - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellants are liable to pay service tax under the category of 'Business Auxiliary Service' for activities related to production of goods on behalf of clients.
2. Whether the appellants are eligible for exemption under Notification No.8/2005-ST.
3. Whether the activities undertaken by the appellants amount to 'manufacture' as per Section 2(f) of the Central Excise Act, 1944.

Analysis:
1. The department alleged that the appellants were involved in the production of goods on behalf of clients, necessitating the payment of service tax under 'Business Auxiliary Service.' The original authority confirmed a demand for service tax, education cess, and penalties. In appeal, the Commissioner set aside the demand for a specific period and directed a recomputation of penalties. The appellant challenged this decision in appeal ST/511/2010.

2. Another show cause notice was issued for a different period, proposing a demand for service tax, education cess, and penalties. The original authority confirmed the demand and imposed penalties under Section 76. The Commissioner upheld this decision, leading to the appellant's appeal in ST/676/2010.

3. The appellant argued that their activities amounted to 'manufacture' as the rough castings received were processed into specific components with new uses. They cited relevant case laws and claimed eligibility for exemption under Notification No.8/2005-ST. The appellant also contended that the processed goods were cleared for export under bond by the Principal Manufacturer, which should not deny them the exemption benefit.

4. The department contended that the appellants were not eligible for exemption under Notification No.8/2005-ST as the returned goods were not used by the principal manufacturer for manufacturing final products. They argued that the activities carried out by the appellants did not amount to 'manufacture.'

5. The tribunal noted that the appellants were not discharging any duty or tax liability until a departmental verification. The activities of the appellants were found to amount to 'manufacture' based on the processes carried out on the rough castings. As a result, the tribunal held that no service tax liability under 'Business Auxiliary Service' arose, setting aside the impugned orders and allowing the appeals with consequential benefits.

This detailed analysis covers the issues raised in the judgment, providing a comprehensive understanding of the legal reasoning and conclusions reached by the tribunal.