Manufacturing process exemption from Business Auxiliary Service tax upheld; unjust enrichment sent back for fresh examination.

Machining and flame hardening of forgings and castings received from a principal manufacturer under Notification No. 214/86-CE were treated as part of the manufacturing process, and because the principal manufacturer was already discharging duty on the processed goods, the activity was not liable to service tax as Business Auxiliary Service. The record also showed that the service tax amount was reflected in invoices, but the appellant claimed it was not actually recovered, so the question of unjust enrichment required fresh examination by the adjudicating authority. Liability was therefore negated, while unjust enrichment was remanded for reconsideration after hearing the appellant.

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Issues: Whether machining and flame hardening of forgings and castings received from the principal manufacturer, undertaken under Notification No. 214/86-CE dated 01.03.1986, rendered the appellant liable to service tax under Business Auxiliary Service; and whether the question of unjust enrichment required reconsideration.

Analysis: The activity carried out by the appellant was part of the manufacturing process on goods received from the principal manufacturer, and the principal manufacturer was discharging duty on the processed goods. On that basis, the activity did not attract service tax under Business Auxiliary Service for the period in dispute. As regards unjust enrichment, the record showed that the service tax amount had been reflected in the invoices, but the appellant asserted that it had not actually been received, and the matter required fresh examination by the adjudicating authority.

Conclusion: The appellant was held not liable to service tax under Business Auxiliary Service. The issue of unjust enrichment was remanded for fresh adjudication after hearing the appellant.

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