2019 (1) TMI 714 - AT - Service Tax

Business Auxiliary Services - benefit of N/N. 214/86-CE - demand on the ground that by melting of scrap/pig iron by electric furnace, no new product emerges and the same has to be considered as business auxiliary services provided by the appellant - Held that - The finding of the Commissioner (Appeals) that melting of scrap by electric furnace does not amount to manufacture, does not appeal to us. The same has resulted in emergence of some product, to which the Commissioner (Appeals) has not referred to at all. On the other hand, the facts indicate and establish that the M.S. Castings were emerging in the appellant s factory. It is also on record that Notification No.214/86-CE challans were being issued by the manufacturer and the goods were being returned by the appellant under the cover of same challans - Demand set aside. Commission earned on trading of commodities etc - service tax paid on being pointed out - penalty - Held that - The law during the relevant period was not clear and there could be a bona-fide belief on the part of the assessee that the said transaction are not taxable - penalty set aside. Appeal allowed in part.

Issues:
1. Whether the service tax and penalty confirmed against the appellant for providing Business Auxiliary Services is justified.
2. Whether the activity of melting scrap by electric furnace amounts to manufacture.
3. Whether the service tax confirmed against the appellant for commission earned on trading of commodities is justified.
4. Whether the penalty imposed on the appellant for the commission earned on trading of commodities should be set aside.

Analysis:

1. The judgment addresses the issue of service tax and penalty confirmed against the appellant for providing Business Auxiliary Services. The Tribunal found that the appellant's activity of melting scrap resulted in the emergence of molten metal used for CI Castings, which were returned to the principal manufacturers. The appellant argued that the activity was done under the cover of challans issued under Notification No.214/86-CE. The Tribunal disagreed with the Revenue's contention, stating that the conversion of waste into casting amounts to manufacture. Consequently, the demand for service tax and penalty of ?6,72,122/- was set aside.

2. The judgment also delves into whether the activity of melting scrap by electric furnace amounts to manufacture. The Commissioner (Appeals) had held that the melting of scrap did not amount to manufacture. However, the Tribunal disagreed, pointing out that M.S. Castings were indeed emerging in the appellant's factory. The Tribunal noted that the goods were being returned under the cover of Notification No.214/86-CE challans, indicating manufacturing activity. As a result, the Tribunal set aside the demand for service tax and penalty related to this issue.

3. Regarding the service tax confirmed against the appellant for commission earned on trading of commodities, the appellant admitted that the tax was required to be paid. The appellant had already deposited the amount but contested the penalty, citing a legal interpretation issue. The Tribunal upheld the demand of ?17,670/- along with interest, as it was not contested. However, the Tribunal set aside the penalty imposed on the grounds that the law during the relevant period was unclear, allowing for a bona fide belief that the transactions were not taxable.

4. In conclusion, the Tribunal partially allowed the appeal and partially rejected it. The judgment highlights the importance of legal interpretation, the definition of manufacture, and the nuances of tax liabilities in the context of business activities.

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