Whether work of joining railway sections taxable under service tax?

PJ/CASE LAW/2015-16/2729

Case:-HARSHAD THERMIC INDUSTRIES (P) LTD. VERSUSCOMMR. OF C. EX. & CUS., RAIPUR

Citation:- 2015 (37) S.T.R. 808 (Tri. - Del.)

Brief facts:- The facts which led to filing of this appeal are, in brief, as under:-
The appellant were engaged in the business of manufacture of thermite mixture and rendering service in relation to thermite welding of rail joints. The thermite mixture, which was used for thermite welding, consists of iron oxide (ferric oxide) and metal powder like aluminum powder, magnesium powder zinc powder etc. In thermite welding process using the mixture of iron oxide and aluminum powder as fuel, the aluminum reduced the iron oxide and iron is produced with a large amount of heat, as the reaction was exothermic. The melted iron produced filled the gap between the rails to be joined. The appellant undertake the joining of two pieces of rails at site for Railways by thermite welding. The department was of the view that the process undertaken by the appellant is “production or processing of goods not amounting to manufacture” and hence, Business Auxiliary Service attracting Service Tax under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. It was on this basis that a Service Tax demand of Rs. 50,32,293/- was raised against the appellant along with interest and also for imposition of penalty vide show cause notice, dated 23-10-2007 for the period 16-6-2005 to 28-2-2007. The show cause notice was adjudicated by the Commissioner vide order-in-original, dated 14-2-2008 by which the Commissioner confirmed the above demand to the extent of Rs. 26,09,242/- and dropped the remaining demand of Rs. 24,29,051/- on the ground that this Service Tax has been demanded on the cost of materials sold. Besides this he also demanded interest on the Service Tax demand confirmed and also imposed penalty of equal amount on the appellant under Section 78 of Finance Act, 1994. Against this order of the Commissioner, this appeal was filed.

Appellant’s contention:- Shri B.L. Narsimhan, Advocate, ld. Counsel for the appellant explained in detail the process of thermite welding undertaken by the appellant for joining of rails and pleaded that since the rails have been joined at site, no goods have emerged for delivery to Railways and that in view of this, the process undertaken by the appellant cannot be categorized as production or processing of goods not amounting to manufacture so as to attract Service Tax demand under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. He, therefore, pleaded that the impugned order was not correct.

Respondent’s contention:- Shri A. Jain, ld. DR, defended the impugned order by reiterating the findings of the Commissioner and pleaded that as a result of the process undertaken by the appellant, the pieces of rails with longer length emerge and hence, the process undertaken by the appellant was production of goods not amounting to manufacture and would attract Service Tax under Section 65(105)(zzb) read with Section 65(19) ibid.

Reasoning of judgment:- Undisputedly, the appellant undertook the joining of sections of rails at site by thermite welding process. The welding of section of rails which are of length of 100 Mtrs was done at site as a result of which there were lesser number of gaps at every 2 Km instead of at every 100 Mtrs, resulting in smooth movement of train on the railway tracks. In fact, the process undertaken by the appellant was part of the process of laying down of tracks and make them fit for traffic movement, as before undertaking the thermite welding process, the rails had to be precisely aligned. In their view, therefore, the activity of the appellant did not result in any deliverable goods to the railways and it cannot be said to be the production or processing of goods not amounting to manufacture. The impugned order, therefore, was not sustainable. The same is set aside. The appeal was allowed.

Decision:- Appeal allowed.

Comment:- In this case, the assessee undertook the work of joining railway sections which resulted into smooth moment of railway, which was the part of the process of laying down the railway tracks. The crux of this case is that although the activity undertaken by the assessee did not result into any deliverable goods to the railway but it cannot be said that there was no production of goods. Hence, it was production or processing of goods amounting to manufacture and was not chargeable to service tax.

Prepared by:- Prayushi Jain

Comments

PJ/CASE LAW/2015-16/2729

Post a Comment

Query