2015 (8) TMI 308 - HC - Service Tax

High Court affirms Tribunal's decision on service tax exemption, emphasizing conditional nature of notification.

Commissioner of Central Excise Versus M/s Federal Mogul TPR India Ltd.

The High Court upheld the Tribunal's decision, emphasizing the conditional nature of Notification No. 8/2005-ST and the inapplicability of Section 5A(1A) ... Availability of Cenvat Credit of Service Tax paid on Exempted Services of Job work - process of chrome plating - Business auxiliary service - Notification No. 8/2005-ST, dated 01-03-2005 - Held that:- A bare reading of this notification denotes that this notification is issued under section 93(1) of the Finance Act, 1994 which exempts the taxable services of production of goods on behalf of the principal manufacturer from the whole of service tax leviable under Section 66 of the Finance Act. However, this exemption notification is subject to the condition that the said exemption shall apply only in cases where such goods are produced using raw materials or semi finished goods supplied by the client i.e., the principal manufacturer and goods so produced are returned back to the said client for use in or in relation to the manufacture of other goods on which appropriate duty of excise is payable. - Notification is condition precedent. Section 5A(1A) of the Central Excise Act provides for power to grant exemption from duty of excise. Section 5A(1A) of the Central Excise Act specifically provides that 'for the removal of doubts, it is hereby declared that where an exemption under Sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods'. - The contention urged on behalf of the Department that the FMGIL having wrongly paid service tax has consequently passed an inadmissible CENVAT credit amounting to ₹ 2,02,00,275/- to the principal manufacturer i.e., FMTPR much against the exemption Notification No. 8 of 2005 is not worthy of acceptance. Notification No. 8 of 2005 is a conditional notification and Section 5A(1A) of Central Excise Act, 1944, is not-applicable to the present case. - no interference is called for with the well reasoned order of the Tribunal - Decided against Revenue. Issues:1. Interpretation of Notification No. 8/2005-ST, dated 01-03-2005.2. Applicability of Section 5A(1A) of the Central Excise Act.3. Alleged violation of Section 5A(1A) by the Respondent.Analysis:Issue 1: The primary issue in this case revolves around the interpretation of Notification No. 8/2005-ST, dated 01-03-2005. The notification exempts taxable services of production of goods on behalf of the client, subject to specific conditions. The notification mandates that goods produced using raw materials supplied by the client must be returned for use in manufacturing products on which excise duty is payable. This condition makes the notification a conditional one, as the benefit is contingent upon the principal manufacturer discharging the excise duty obligation on the goods returned.Issue 2: The applicability of Section 5A(1A) of the Central Excise Act is crucial in determining the obligations regarding exemptions from excise duty. Section 5A(1A) stipulates that if an exemption is granted absolutely under Sub-section (1), the manufacturer shall not pay excise duty on the exempted goods. This provision imposes a mandatory requirement on the manufacturer not to pay duty on goods granted absolute exemption. However, the absence of a similar provision in the Service Tax Act indicates that the provisions of Section 5A of the Central Excise Act do not apply to the Finance Act, 1994.Issue 3: The contention raised by the Department regarding the alleged violation of Section 5A(1A) by the Respondent is examined in light of the conditional nature of Notification No. 8/2005. The Respondent, as a job worker, paid service tax without availing the exemption notification, intending to pass on the CENVAT credit benefit to the principal manufacturer. However, since the notification is conditional and Section 5A(1A) does not apply, the Tribunal concluded that no violation occurred. The Tribunal's decision to dismiss the appeals and uphold the Respondent's position was based on the interpretation of the notification and relevant legal provisions.In conclusion, the High Court upheld the Tribunal's decision, emphasizing the conditional nature of the notification and the inapplicability of Section 5A(1A) in this case. The judgment favored the Respondent, highlighting the legal intricacies surrounding exemptions and obligations under the Central Excise Act and the Service Tax Act.