Whether activity of repacking leviable to service tax under ‘BAS’?

PJ/CASE LAW/2014-15/2456

Case:- DESHMUKH SERVICES VERSUS COMMR. OF C. EX., S.T. & CUS., NAGPUR

Citation:-2014 (36) S.T.R. 100 (Tri. - Mumbai)

Brief facts:- The appellant, M/s. Deshmukh Services, Khamgaon, Buldana undertake job-work for M/s. Hindustan Unilever Ltd. The job-work undertaken relates to mixing of soap bits provided by M/s. Hindustan Unilever Ltd. and returning the same in 50 Kgs. or bigger bags as per the company’s instructions and multi-piece packaging for which they receive a consideration from M/s. Hindustan Unilever Ltd. The Department was of the view that the activity undertaken by the appellant is not covered by Section 2(f) of the Central Excise Act, 1944 as “manufacture” and, therefore, liable to pay Service Tax on the activity under the category of ‘Business Auxiliary Service’. Accordingly, a show cause notice dated 19-10-2011 was issued to the appellant proposing to classify the service rendered during the period 1-4-2006 to 31-3-2011 under the category of ‘Business Auxiliary Service’ and demanding Service Tax of 76,36,267/- along with interest thereon and also proposing to impose penalty under the provisions of the Finance Act, 1994. The case was adjudicated and the learned Commissioner confirmed the duty demand along with interest thereon apart from imposing penalties. Hence the appellant is before Tribunal.

Appellant’s contention:- The learned counsel for the appellant submits that they have received semi-processed goods manufactured by M/s. Hindustan Unilever Ltd. under challans issued under Rule 4(5)(a) of the Cenvat Credit Rules, 2004 and after undertaking the job-work they have returned the same to M/s. Hindustan Unilever Ltd. who discharged the excise duty liability on the soaps. As per the definition of ‘manufacture’ any process which is incidental or ancillary to the completion of a manufactured products also amounts to manufacture under Section 2(f) of the Central Excise Act, 1944 and, therefore, the activity undertaken by the appellant is not liable to Service Tax under the category of ‘Business Auxiliary Service’. The demand is also time-barred. It is further contended that under Notification No. 8/2005-S.T., dated 1-3-2005 exemption is available in respect of job-work undertaken on the raw materials/semi-finished goods supplied by the service recipient and, therefore, even if the activity is considered as ‘rendering of service’ and not ‘manufacture’, they are eligible for the duty exemption and hence stay be granted.

Respondent’s contention:- The learned Additional Commissioner (AR) appearing for the Revenue reiterates the findings given in the impugned order and prays for putting the appellant to terms.

Reasoning of judgment:- The Hon’ble Tribunal are of the view that the appeal itself can be disposed of at this stage after dispensing with the requirement of any pre-deposit.
As per Section 2(f)(iii) ‘manufacture’ includes any process which in relation to the goods specified in the 3rd Schedule involves packing or re-packing of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment to the goods to render the products marketable to the consumer and soaps are covered under III Schedule to the Central Excise Act, 1944 vie Serial No. 40 of the said III Schedule. Therefore, if the appellant undertakes multi-piece packaging it would come under the category of ‘packing or re-packing of goods and would be an activity of ‘manufacture’. No finding has been given by the authority in the impugned order as to why the activity of multi-piece packaging undertaken by the appellant would not come under the definition of ‘manufacture’. The only ground given is that soap is already in a packed condition and, therefore, manufacture is complete. But the definition covers not only packing but also re-packing. Multi-piece packaging is done on the soaps already packed and, therefore, it would amount to repacking and accordingly the activity would be covered under the definition of ‘manufacture’ under Section 2(f)(iii). As regards the activity of mixing of soap noodles and packing them in bags or re-packing from small packs to big packs also, no finding has been given except for saying that the appellant has not contested the duty demand. If the soap noodles are sold as such after mixing and packing/re-packing, then the activity undertaken by the appellant would amount to ‘manufacture’. On the other hand, if they are not sold as such, but are subject to further processes, since the goods are moved under Rule 4(5)(a) of the Cenvat Credit Rules, 2004 it will be an intermediary process in the course of manufacture of soaps and since such movements are permitted without payment excise duty, the question of levy of Service Tax would not arise at all. Even if it is held that the appellant’s activity amounts to ‘Business Auxiliary Service’, Notification No. 8/2005-S.T., dated 1-3-2005 grants exemption from Service Tax if the goods, after undertaking the job-work, are returned to the supplier of the goods further manufacture. They do not understand why this Notification is not applicable to the facts of the present case.
In view of the above, they set aside the impugned order and remand the case back to the adjudicating authority to consider the matter afresh and pass an order in accordance with law after hearing the appellant and giving a specific finding as to why the activity undertaken by the appellant does not amount to manufacture and if it does not amount to manufacture, why benefit of Notification No. 8/2005-S.T. cannot be extended.
Thus, the appeal is allowed by way of remand. The stay application is also disposed of.

Decision:- Appeal allowed by way of remand.

Comment:- The analogy of the case is that as far as an activity is covered by the term ‘manufacture’ or is governed by the provisions of job work, no service tax is leviable on the said activity. In the present case, multi-piece packaging is done on soaps already packed and therefore this will amount to repacking and covered under definition of manufacture under Section 2(f)(iii) of Central Excise Act, 1944. Therefore, no service tax will be leviable under ‘BAS’. Even if certain processes are not considered as amounting to manufacture, if thegoods are moved under Rule 4(5)(a) of the Cenvat Credit Rules, 2004 it will be an intermediary process in the course of manufacture of soaps. Hence, according to notification no. 8/2005-S.T., dated 1-3-2005 there is exemption from Service Tax if the goods after undertaking the job-work are returned to the supplier of the goods further manufacture. Consequently, the appeal was allowed.

Prepared by:- Monika Tak

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PJ/CASE LAW/2014-15/2456

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