Intermediate process undertaken by job-worker not leviable to service tax under BAS.

PJ/CASE LAW/2015-16/2578

Case:-PIONEER ENGINEERING INDUSTRIES Versus C.C.E. & S.T., TIRUCHIRAPALLI

Citation:-2014 (36) S.T.R. 1307 (Tri. - Chennai)

Brief facts:- The relevant facts of the case in brief, are that, the applicant is a job worker of M/s. Bharat Heavy Electricals Ltd. (BHEL). The nature of process involved is cutting, drilling, pressing, welding, etc., as per the drawings of conversion of steel plates into partially finished and fully finished boiler components. According to the Revenue, the process undertaken by the applicant, would not amount to manufacture under Section 2(f) of the Central Excise Act, 1944 and, therefore, they are liable to pay service tax under “Business Auxiliary Service”. Adjudicating authority confirmed the demand of tax of Rs. 1,23,64,273/- along with interest and penalty for the period Oct.’06 to Sept.’11.

Appellant’s contention:-The learned Counsel on behalf of the applicant relied upon the decision of the Tribunal in the case of M/s. MunishForge Pvt. Ltd.v. Commissioner of Central Excise and Service Tax,Ludhiana reported in 2014-TIOL-862-CESTAT-DEL, whereby the Tribunal allowed the appeal of the assessee on identical issue. The relevant portion of the said order is reproduced below:

“The service tax demand is in respect of the transaction between the appellant and their principal manufacturer M/s. Dev Arjuna Cast & Forge Pvt. Ltd., for whom the appellant had done the job work of converting rounds into handles which are a part of scaffolding. M/s. Dev Arjuna Cast & Forge Pvt. Ltd. manufacture scaffolding items for supply to M/s. L&T. A part of the scaffolding item viz. “Handle” is got manufactured by M/s. Dev Arjuna Cast & Forge Pvt. Ltd. through the appellant out of the rounds supplied to them. It is not disputed that the appellant subjected those rounds to the process of cutting, bending, threading and finished processes like shot blasting, heat treatment, etc. It is also not disputed that the appellant had intimated the department about availment of exemption under Notification No. 214/86-C.E. and also the principal manufacturer had given an undertaking under this exemption notification to use the job work goods in the manufacture of finished products which would be cleared on payment of duty. From these facts, it is clear that the department itself has accepted the appellant’s activities as manufacture. Moreover, subjecting the rounds to the process of cutting, bending, threading, heat treatment, short blasting, as a result of which, a part of scaffolding item “Handle” emerges would amount to manufacture. Therefore, the activity of the appellant cannot be treated as Business Auxiliary Services (Production of goods not amounting to manufacture). Moreover, even if, it is treated as service, when it is not denied that the job work goods were returned by the appellant to the principal manufacturer, the exemption under Notification No. 8/2005-S.T., dated 1-3-2005 cannot be denied on the ground that there is no evidence that the goods produced were used by the principal manufacturer in or in relation to the manufacture of final products. In view of this, the impugned order is not sustainable. The same is set aside. The appeal as well as stay application are allowed.”

Respondent’s contention:- The learned Authorised Representative on behalf of the Revenue submits that the applicant themselves have not filed the declaration under Notification No. 214/86. The declaration is not covering the entire period of dispute. He relied upon the decision of the Tribunal in the case of Tansi Engineering Worksv. Commissioner of Central Excise, Coimbatore, reported in 1996 (88)E.L.T.407 (Tribunal), upheld by the Supreme Court. It has been held that cutting and punching of holes in angles and channels would not amount to manufacture. On a perusal of the impugned order, we find that the matter was verified by the Superintendent of Central Excise and a report was given by letter dated 3-7-2013 of the Assistant Commissioner of Central Excise.
In the Verification Report, it is reported that the raw materials such as MS Plates, MS Pipes and MS Rods were supplied to the applicant by their customers along with Purchase Order, Delivery Challans and drawings and processes were undertaken by the applicant as per the drawing supplied by their customers and the resultant job worked materials were cleared under Delivery Challans and invoices under the name as specified in the Purchase Orders.
The adjudicating authority observed that the job work material were not cleared as such but on the other hand subject to further manufacturing at the end of the customers before they are used/cleared as components of boilers and, therefore, does not amount to manufacture at the premises of the applicant.
It is noted that the applicant also claimed the benefit under Service Tax Notification No. 8/2005-S.T., dated 1-3-2005. The relevant portion of the said Notification is reproduced below :-
“In exercise of the powers conferred by sub-section (1) of Section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of production of goods on behalf of the client referred in sub-clause (v) of clause (19) of Section 65 of the said Finance Act, from the whole of service tax leviable thereon under Section 66 of the said Finance Act :
Provided that the said exemption shall apply only in cases where such goods are produced using raw materials or semi-finished goods supplied by the client and goods so produced are returned back to the said client for use in or in relation to manufacture of any other goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), as amended by the Central Excise Tariff (Amendment) Act, 2004 (5 of 2005), on which appropriate duty of excise is payable.
Explanation. - For the purposes of this notification, -
(i) the expression “production of goods” means working upon raw materials or semi-finished goods so as to complete part or whole of production, subject to the condition that such production does not amount to “manufacture” within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944 (1 of 1944).”

Reasoning of judgment:- They find that M/s. BHEL filed a declaration under Notification No. 214/86-C.E., dated 1-3-1986 as amended from time to time, to the Deputy Commissioner of Central Excise, Division - Tiruchirapalli and submitted an undertaking the responsibility of discharging their liabilities in respect of the Central Excise Duty leviable on the final products including waste and scrap on the job work material. M/s. BHEL had given a certificate in respect of job work by the applicant which is reproduced below :-
“This is to certify that we are sending raw materials in the form of steel plates, rods, sheets, etc., to M/s. Pioneer Engineering Industries, No. 2, Chennai Bye-pass Road, Subramanyapuram, Trichy - 620 020 for conversion into parts of boilers by following the procedure prescribed in Notification No. 214/86-C.E. We cannot use the steel plates without such conversion into boilers components. We have also provided the drawings and Work Orders for the same. The nature of process involved is Cutting, Drilling, Pressing, Welding, etc., as per the drawings of conversion of such steel plates into fully finished boiler components. These boiler components are further received in our factory and used as such for further assembly in the boilers. The list of such boiler components are furnished in the annexure to this certificate.”

They find that the applicant undertook the job work on behalf of their client M/s. BHEL. There is no dispute that the job work materials used in relation or in relation to the manufacture of the components of boiler. Prima facie, they find that the present case is covered by Exemption Notification No. 8/2005-S.T., dated 1-3-2005 and also supported by the decision of the Tribunal in the case of M/s. Munish Forge Pvt. Ltd.(supra). The case law of M/s. Tansi Engineering Works (supra) is not related to the circumstances of the present case. In view of the above discussion, they waive pre-deposit of tax along with interest and penalty till disposal of the appeal and recovery stayed thereof. Stay application is allowed.

Decision:-Stay granted

Comment:- The analogy of the case is that if any process is undertaken on the materials supplied to the job-worker which does not result into manufacture of excisable goods but results in intermediate goods used in manufacture of final dutiable products, then the process cannot be leviable to service tax under the category of BAS. This fact is also supported by exemption notification no. 8/2005-ST dated 01.03.2005 and decision given in the case of Munish Forge Pvt. Ltd.

Prepared by:- Monika Tak

Comments

PJ/CASE LAW/2015-16/2578

Post a Comment

Query