2014 (4) TMI 589 - AT - Service Tax

Tribunal rules making corrugated boxes from craft paper is manufacturing, not Business Auxiliary services

The Tribunal allowed the appeal, ruling that making corrugated boxes from craft paper on a job work basis amounts to manufacturing, not 'Business ... Demand of service tax - Manufacture of corrugated boxes from craft paper on job work basis - Business Auxiliary services - Held that:- There is no dispute about the nature of the activity of the appellant - making corrugated boxes from craft paper on job work basis. Craft paper is covered by Heading No.4805 of the Tariff, and corrugated boxes are covered by Heading No.4819 of the Tariff - Even the ld. DR agreed that making of corrugated boxes from craft paper would amount manufacture. In view of this, it is difficult to understand as to how a senior officer of the rank of Addl. Commissioner has confirmed the demand of service tax against the appellant by treating their activities as Business Auxiliary services covered by Section 65(105)(zzb) read with Section 65(19) of 1994 Act holding that the process carried out by the appellant does not amount to manufacture under Section 2(f) of the Central Excise Act. The order passed by the Addl. Commissioner shows his total ignorance to the Central Excise Law. It appears that the Additional Commissioner, in his anxiety to confirm the service tax demand made in the show cause notice put up before him for adjudication, did not realize that on the basis of this decision in his adjudication order that making of corrugated boxes from craft paper on job work basis does not amount to manufacture, all the corrugated box manufacturing unit manufacturing corrugated boxes from craft paper would claim that their activity would not attract excise duty. Commissioner (Appeals), instead of deciding the appeal on merits, as an Advocate representing the appellant had appeared before him, has chosen to dismiss the appeal by invoking Rule 5 of the Central Excise (Appeal) Rules, which pertain to the production of additional evidence. Considering the reply to the show cause notice and hearing the appellant when the original adjudicating authority had passed an ex parte order without waiting for the reply to the show cause notice cannot be treated as introduction of additional evidence - Decided in favour of assessee. Issues:Service tax liability on job charges for making corrugated boxes from craft paper; Confirmation of service tax demand by Addl. Commissioner; Dismissal of appeal by Commissioner (Appeals) under Rule 5 of Central Excise (Appeal) Rules; Nature of activity of making corrugated boxes from craft paper on job work basis; Ignorance of Central Excise Law by Addl. Commissioner; Dismissal of appeal without considering merits.Service Tax Liability on Job Charges:The appellant made corrugated boxes from craft paper on job work basis for certain clients. The department alleged that this activity falls under 'Business Auxiliary services' liable for service tax. The Addl. Commissioner confirmed a service tax demand of Rs. 16,66,399 along with penalties. However, the Tribunal found that making corrugated boxes from craft paper amounts to manufacture, as agreed by the Department's representative. The Tribunal criticized the Addl. Commissioner's decision, stating it showed ignorance of Central Excise Law. The Tribunal concluded that the service tax demand was unjustified, and the appeal was allowed.Dismissal of Appeal by Commissioner (Appeals):The Commissioner (Appeals) dismissed the appeal under Rule 5 of the Central Excise (Appeal) Rules without considering the merits of the case. The Tribunal criticized this decision, noting that the appellant had not been given a fair chance to present their case before the Addl. Commissioner. The Tribunal found the dismissal to be unjust and set it aside, allowing the appeal.Nature of Activity of Making Corrugated Boxes:The Tribunal clarified that making corrugated boxes from craft paper on job work basis amounts to manufacture, as per the Tariff classifications. The Tribunal highlighted the discrepancy in the Addl. Commissioner's interpretation of the activity as 'Business Auxiliary services' and criticized the lack of understanding of Central Excise Law in the decision-making process.Ignorance of Central Excise Law by Addl. Commissioner:The Tribunal strongly criticized the Addl. Commissioner's decision, stating it showed a lack of understanding of Central Excise Law. The Tribunal highlighted that the Addl. Commissioner's decision could have far-reaching implications for other corrugated box manufacturing units. The Tribunal deemed the decision as unjust and unsustainable, ultimately setting it aside.Dismissal of Appeal Without Considering Merits:The Tribunal found the dismissal of the appeal by the Commissioner (Appeals) without delving into the merits of the case to be unfair. The Tribunal noted that the appellant had not been given a fair opportunity to present their case before the original adjudicating authority. The Tribunal set aside the dismissal and allowed the appeal, ensuring a just outcome for the appellant.This comprehensive analysis of the judgment covers the issues involved and provides a detailed insight into the Tribunal's decision-making process and critique of the Addl. Commissioner's and Commissioner (Appeals) decisions.