2020 (11) TMI 534 - AT - Service Tax

Classification of services - Cleaning services or not - Appellant is engaged in the manufacture of lubricating oil/ grease and break oil and also in the refining of waste oil - Department formed a view that by incinerating the waste of other industries, the Appellant was rendering cleaning activity services in terms of section 65(24b) of the Finance Act, which is taxable under section 65(105) (zzzd) of the Finance Act - HELD THAT - A reading of the scope of cleaning activity under section 65(24b) of the Finance Act would indicate that the essence of the activity is to clean either an object which is present within the premises or the premises itself of a commercial building/factory/plant or machinery. These services are rendered by the service provider at the premises of the recipient, where the intended objects or premises are required to be sanitized. Thus, the taxable service of 'cleaning' would include only those services wherein the cleaning activity has been undertaken at the premises of the service recipient. Incineration of waste is a process involving destruction of waste/residue at high temperatures, which has been undertaken by the Appellant at its own plant. The waste of other industries which is intended to be incinerated by the Appellant is delivered by the industries to the premises of the Appellant. It is not a case where the Appellant goes to the premises of the industries to perform any cleaning activity. Instead, the waste is delivered to the site of the Appellant in safe leakage proof bags by the industries for proper disposal. The industries are not concerned with the waste thereafter. It is clear that 'exterminating of objects covers destroying insects, rodents and other pests in respect of objects/premises. Hence, the term extermination has to be in connection with activities such as fumigation; pest control or other such activities which are in the form of treatment of premises / objects against animal or pest infestation. The impugned order, therefore, erred in treating the term extermination as being equivalent to incineration - It would be also be pertinent to refer to the CBEC Circular dated July 13, 2007 which specifically provides that incineration of waste is not taxable under business auxiliary service or any other taxable service. Demand do not sustain - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Validity of the show cause notice based on a dropped audit objection.
2. Applicability of service tax under "cleaning activity" services.
3. Definition and scope of "cleaning activity" under the Finance Act.
4. Whether incineration of waste qualifies as "extermination" under "cleaning activity."
5. Applicability of CBEC Circulars on incineration of waste.
6. Invocation of the extended period of limitation.

Issue-wise Detailed Analysis:

1. Validity of the Show Cause Notice Based on a Dropped Audit Objection:
The Appellant argued that the show cause notice was issued based on an audit objection for the period April 1, 2011, to March 31, 2013, which was subsequently dropped by the Superintendent, Central Excise. The Commissioner, however, confirmed the demand despite the dropped audit objection. The Tribunal referred to previous decisions in M/s. Kalyan Projects Construction Co. and Hindustan Zinc Limited, which held that demands based on dropped audit objections are not sustainable. Consequently, the Tribunal found that the demand confirmed in the impugned order must be set aside since the audit objection had been dropped.

2. Applicability of Service Tax under "Cleaning Activity" Services:
The Department contended that the Appellant was rendering "cleaning activity" services by incinerating waste from other industries, taxable under section 65(105)(zzzd) of the Finance Act. The Appellant argued against this classification, stating that incineration does not fall under "cleaning activity" as defined in section 65(24b) of the Finance Act.

3. Definition and Scope of "Cleaning Activity" Under the Finance Act:
Section 65(24b) defines "cleaning activity" as cleaning, including specialized cleaning services such as disinfecting, exterminating, or sterilizing of objects or premises of commercial or industrial buildings, factories, plants, or machinery. The Tribunal noted that "cleaning activity" involves services rendered at the premises of the service recipient, which was not the case here since the waste was delivered to the Appellant's premises for incineration.

4. Whether Incineration of Waste Qualifies as "Extermination" Under "Cleaning Activity":
The Tribunal examined the definitions of "incineration" and "exterminate" from various dictionaries. It concluded that "extermination" pertains to killing pests or animals and does not equate to "incineration," which involves burning waste. Therefore, the Tribunal held that the Commissioner erred in treating incineration as extermination under "cleaning activity."

5. Applicability of CBEC Circulars on Incineration of Waste:
The Tribunal referred to the CBEC Circular dated July 13, 2007, which clarified that incineration of waste is not taxable under business auxiliary services or any other taxable service. The Circular emphasized that incineration cannot be considered as "processing of goods" or a service provided on behalf of a client. This reinforced the Tribunal's view that incineration is not covered under "cleaning activity."

6. Invocation of the Extended Period of Limitation:
The Appellant contended that the extended period of limitation could not be invoked as there was no intent to evade payment of service tax. The Tribunal did not delve deeply into this issue, given that the primary demand itself was found unsustainable.

Conclusion:
The Tribunal concluded that the demand confirmed under the impugned order could not be sustained due to the dropped audit objection and the misclassification of incineration as "cleaning activity." The appeal was allowed, and the demand set aside.

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