2024 (12) TMI 601 - AT - Service Tax

Levy of service tax - supply of tangible goods service - deemed sale - demand dropped on the ground that the arrangement constitutes deemed sale since machineries are under absolute control and possession of the principal manufacturers and all the terms of deemed sale are fulfilled in this case - HELD THAT - It is found that installation of the machinery in the clients factory is to carry out their own job at the factory premises of their client. The machine was used by themselves for carrying out the production activity. In such case there is no deemed sale whereas the entire activity is of production process on job work basis by the respondent - Since the respondent has not collected any amount such as lease rent there is no consideration towards supply of tangible goods for use . Therefore in absence of any consideration towards the supply of tangible goods for use service the demand under the said head is not correct. From the rates schedule given in the agreement coupled with the invoices raised by the respondent it is clear that the charges are for production of various items such as making of PVC trey bristling of handles from Nylon NS Wire making of handles from EP and SAN supplied by the client all these activities were carried out on the machine supplied by the respondent. The aforesaid invoices clearly show that the charges were collected towards production process on job work which was carried out on their own machine. It does not remotely indicate that these charges can be considered as lease rent of the machine under the supply of tangible goods for use service . The transaction is of job work on their machine in the factory premises of their client and there is no transaction of supply of tangible goods for use service . Therefore the contention of the Revenue to demand the service tax under the said head has on basis - despite some findings of the Commissioner (Appeals) is not flowing form the show cause notice and the Order-In-Original but despite that considering cross objection filed by the respondent the transaction is of job work and not of supply of tangible goods for use service . Revenue s appeal is not maintainable and the same is dismissed.

Summary

Issues:
Interpretation of deemed sale in job work arrangement for production of tangible goods, applicability of service tax on supply of tangible goods service, validity of Commissioner (Appeals) order, existence of genuine agreement for job work, consideration for supply of machine in job work arrangement.

Analysis:
The case involved a job work arrangement where the respondent undertook the production of toothbrushes and intermediate processes for two manufacturers. The Commissioner (Appeals) ruled the arrangement as a deemed sale, exempting it from service tax under 'supply of tangible goods service.' The Revenue challenged the order, arguing that the core issue of service supply was not addressed. The Revenue contended that the agreement presented was post-created and lacked essential details, rendering it non-existent during the transaction period. The Revenue cited legal precedents to support its argument.

On the other hand, the Respondent argued that placing machines in the client's factory for production did not constitute 'supply of tangible goods for use service.' They highlighted that charges were solely for job work production, not for machine lease or rent. The Respondent referenced various judgments and circulars to support their stance.

Upon review, the Tribunal found that the job work arrangement did not amount to a deemed sale. The respondent carried out the production process using their machines in the client's factory without charging for machine use separately. The Tribunal analyzed the rates schedule and invoices, concluding that the charges were for production activities, not machine lease. The Tribunal held that the transaction was job work, not 'supply of tangible goods for use service,' dismissing the Revenue's appeal and disposing of the cross objection.

In conclusion, the Tribunal upheld the Commissioner (Appeals) decision, emphasizing that the transaction was job work and not subject to service tax under 'supply of tangible goods for use service.' The judgment was pronounced on 03.12.2024.