Whether packaging of fertilisers leviable to service tax if it forms integral part of manufacturing?

PJ/CASE LAW/2015-16/2719

Case:-NEW ERA HANDLING AGENCY VERSUS COMMISSIONER OF S. TAX, PANAJI-GOA

Citation:- 2015 (37) S.T.R. 344 (Tri. - Mumbai)

Brief Facts:-The appellant M/s. New Era Handling Agency (NEHA), Goa is engaged in providing packaging activity services in relation to fertilizer manufactured by M/s. Zuari Industries Ltd., Goa, for which they are receiving certain consideration. The department was of the view that the activity undertaken by the appellant would come under the category of packaging services as defined in Section 65(76b) of the Finance Act, 1994 and, therefore, they are liable to pay Service Tax. Accordingly, show cause notice was issued demanding the Service Tax for the period 16-6-2005 to 31-3-2010. The show cause notice was adjudicated and demand was confirmed along with interest and equal amount of penalty was also imposed and penalty of Rs. 5,000/-. Aggrieved from the said order, the appellant is before Tribunal.

Appellants Contention:-Shri Naresh Thacker, the ld Counsel for the appellant appeared before us and submits that as per Essential Commodities Act read with Fertilizer Control Order 1985 (FCO), which governs the transaction relating to manufacture, sale and distribution of fertilizers and as per Clause 19 of the said FCO, there are restrictions on manufacture, sale and distribution of fertilizers which read as follows. “No person shall himself or by any other person on his behalf sell, offer for sale, stock or exhibit for sale or distribute (a) any fertilizer the container whereof is not packed and marked in the manner laid down in this order; (b) any fertilizer the label or container where bears the name of any individual firm or company purporting to be manufacturer of the fertilizer, which individual, firm or company is fictitious or does not exist”. Further as per Clause 21. “Every manufacturer and pool handling agency shall in regard to packing and marking of containers of fertilizers comply with the following requirements”.
Therefore, the packing of fertilizer is a statutory activity under the Fertilizer Control Order without which the fertilizer cannot be marketed. He further submits that as per Section 2(f) of the Central Excise Act, 1944 defines “manufacture” to include any process, incidental or ancillary to the completion of a manufactured product. In these terms, manufacture of fertilizer is complete only when the packaging is done. He further submits that the packaging activity has defined in Section 65(76b) of the Finance Act, 1994, excludes the packaging of fertilizer since the said section excludes any activity which amounts to manufacture under Section 2(f) of the Central Excise Act, 1994. He also relies on the decision of Hon’ble High Court of Madhya Pradesh in the case of Maa Sharda Wine Tradersv. Union of Indiareported in 2009 (15)S.T.R.3 (M.P.). Therefore, he prayed that as without packaging fertilizer cannot be marketed and therefore packaging is integrally connected with the completion of the manufacturing process and hence, the said activity squarely falls under Section 2(f) of the Central Excise Act, 1944, He further submits that M/s. Zuari Industries Ltd. have discharged the Central Excise duty by adding the packaging charges in their assessable value. In these terms, he submits that their activity does not fall under the packaging activity as per Section 65 (76b) of the Finance Act, 1994. Therefore, impugned order is required to be set aside.

Respondents Contention:-On the other hand ld. AR submits that manufacture of fertilizer is complete even: before it is packed and even after packaging, fertilizer remains fertilizer and therefore, process of packaging undertaken does not come under the definition of Section 2(f) of the Central Excise Act, 1944. As the process undertaken by the appellant is not a process incidental or ancillary to complete the manufactured product as the fertilizer is already completed. He further submit that for bulk sale of fertilizer, no packaging is required. In these terms, the appeal is required to be dismissed.

Reasoning Of Judgement:-Heard both sides and considered the submissions in detail. As per Essential Commodity Act 1955, read with Fertilizer Control Act Order 1985, tribunal find that it is cleared that fertilizer cannot be marketed without packaging in the manner specified under the said order, thus packaging of fertilizer is a statutory requirement for sale of the fertilizer. The tribunal further find that sale of fertilizer in bulk requires a license to sell in bulk. As the appellant is not having any such license, therefore packaging is a statutory requirement for sale of fertilizer by M/s. Zuari Industries Ltd. If marketing of fertilizer cannot take place without packaging, the appellant is a manufacturer as per Section 2(f)(i) of the Central Excise Act, 1944, wherein manufacture includes any process incidental or ancillary to the completion of a manufactured final product. In other terms, the completion of fertilizer manufacture product occurs when packaging is done and without packaging, the fertilizer cannot be marketed. Therefore, tribunal do agree with the contention of the ld. Counsel for the appellant that activity of packaging undertaken by them in respect of fertilizer would form an integral part of manufacturing activity and cannot be said to be a service activity, especially, in the context of packaging activity as defined in Section 65(76b) which excludes from its scope, any activity of manufacture as defined in Section 2(f) of the Central Excise Act, 1944. Therefore, tribunal hold that appellant being a manufacturer is doing the packaging activity and does not fall under packaging activity defined in Section 65(76b) of the Finance Act, 1994. With these terms, tribunal set aside the impugned order and allow the appeal with consequential relief if any.

Decision:- Appeal allowed.

Comment:- The crux of the case is that the Packaging activity as defined in Sec 65(76b) of Finance Act, 1994, excludes any activity amounting to manufacture u/s 2(f) of the Central Excise Act, 1994.In the given case as the Packaging activity is essential for marketing of fertilizers, therefore it is an activity incidental or ancillary to the completion of a manufactured final product and it would form an integral part of manufacturing activity and not of service activity. Therefore, no service tax is payable on the packaging activity.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2719

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