Whether conversion of black bars into bright bars by the job worker amounts to manufacture?

PJ/CASE LAW/2015-16/2859

Case:-COMMISSIONER OF CENTRAL EXCISE, NAGPUR VERSUSPARAMHARI ENGINEERS

Citation:- 2015 (39) S.T.R. 340 (Tri. - Mumbai)

Brief Facts:-This appeal is filed by the Revenue against Order-in-Appeal No. SR/30/NGP/2010, dated 20-1-2010 passed by Commissioner of Central Excise & Customs (Appeals), Nagpur. The relevant facts are that the appellant are engaged in the job of conversion of black bars into bright bars for M/s. Sunflag Iron & Steel Company Ltd., Warthi and M/s. NHK Springs India Ltd., Malanpur under regular agreement with them for which received processing charges from them. The appellant was doing work of straightening, peeling, centreless grinding of steel (carbon, ally, spring, free cutting and stainless steel) thereby converting black bars into bright bars. The Hon’ble Supreme Court in the case of M/s. Vee Kayan Industries v. C.C.E., Chandigarh [1996 (83) E.L.T. 262 (S.C.)] held that the conversion of black bars into bright bars does not amount to manufacture. However as per Chapter Note 4 to Chapter 72 of Central Excise Tariff Act, 1985, the above process has been recognized as amounting to manufacture in terms of Central Excise Tariff Act, 1985 w.e.f. 1-3-2005, which implies that prior to 1-3-2005 the above process was not amounting to manufacture. On verification of the records of the appellant for the period 10-9-2004 to 28-2-2005 it was noticed that they have recovered processing charges of Rs. 31,30,543/- from M/s. Sunflag Iron and Steel Company Ltd., Warthi and M/s. NHK Spring India Ltd., Malanpur, however, they have not paid service tax, on processing charges recovered from the above parties for job work under the category “Business Auxiliary Service”. As per clause (v) of Section 65 of the Finance Act, 1994, the activity of production of goods on behalf of the client not amounting to manufacture would attract service tax. It appeared that the above act of the appellant has resulted in non-payment of service tax amounting to Rs. 3,19,315/-. Therefore, the lower authority issued a show cause notice to the appellant and adjudicated in the aforesaid manner. Aggrieved by the order, the assessee preferred an appeal before the first appellate authority. The first appellate authority after following due process of law, set aside the order-in-original and allowed the appeal.

Appellants Contention:-Learned DR after took the bench through the order-in-appeal, submits that the first appellate authority had erred in setting aside the order-in-original. It is his submission that services rendered by the assessee would fall under the category of “Business Auxiliary Services” as they are processing goods on behalf of their clients. He would submit the reliance placed by the learned Commissioner (Appeals), on a Board Circular No. 24/24/94-CX, dated 21-2-1994 is incorrect. He would submit that the respondent herein has manufactured the goods during the period when they were held to be as not amounting to manufacture.

Respondents Contention:-None appeared on behalf of the respondent.

Reasoning Of Judgement:-After perusing the records with the help of learned DR, tribunal find that the appeal could be disposed of at this stage without any representation from the assessee.
On careful consideration of the submissions made by the learned DR and perusal of the records, they find nothing wrong in the order passed by the first appellate authority for more than one reasons;
(i) Firstly, the first appellate authority has recorded clearly “besides, appellants are also converting black bars into bright bars by availing Cenvat Credit on the inputs and clearing finished goods on payment of Central Excise Duty. When the process is accepted as a process of manufacture, it is not correct or logical to conclude that the same process when carried on job work basis does not amount to manufacturing”.
This submission of the assessee before the first appellate authority has been accepted, as there are no contrary findings and the Revenue’s ground of appeal are also not contradicting the said submissions made by the assessee. In the absence of any counter to submissions that the activity undertaken by the appellant/assessee amounts to manufacture and they have discharged the Central Excise duty, the same process if it is undertaken on job work, cannot be held as not manufacturing process.
(ii)Secondly, they find that the first appellate authority has rightly relied upon the benefit of Notification No. 202/88-C.E., dated 20-5-1988 which clearly indicates the exemption to certain final products made from the specific products. It is settled law that an exemption from Central Excise duty can be granted only to manufacturer of products. The benefit of Notification No. 202/88-C.E. is in respect of items manufactured in job work process by the assessee, in this case, it has correctly been held as manufactured products by the first appellate authority.
In our considered view the findings recorded by the first appellate authority are correct and the Revenue’s appeal has no merits. The impugned order is upheld as correct and legal. Appeal is rejected.

Decision:- Appeal rejected.

Comment:-The gist of the case is that when assessee is paying duty on clearance of bright bars and the same is not disputed by the revenue department, then the process of conversion of black bars into bright bars undertaken in the capacity of job worker would also amount to manufacture and no service tax is payable. The department cannot take two different stands for the same issue.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2859

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