Service tax on branded goods conversion: Tribunal refused full pre-deposit waiver and required partial deposit pending appeal.

In a service tax dispute over branded goods produced to client specifications, the Tribunal held at the stay stage that the activity appeared to be production for the client and prima facie did not amount to manufacture under the Central Excise Act, 1944. It further noted that the exclusion from Business Auxiliary Service seemed confined to manufacture within that Act, and that the taxable value under section 67 of the Finance Act, 1994 could prima facie include the conversion element. Authorities on bottling and packing were found distinguishable. Complete waiver of pre-deposit was declined, and the applicants were directed to deposit Rs. 50,00,000, with waiver and stay for the balance on compliance.

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Issues: Whether, in a service tax dispute concerning production of branded goods for clients, the applicants were entitled to complete waiver of pre-deposit pending appeal.

Analysis: The dispute arose from a demand under Business Auxiliary Service for production of goods for or on behalf of clients. The applicants relied on the character of the activity as manufacture, the payment of sales tax/VAT, and exemption principles. The Tribunal noted that the goods were produced to client specifications and could not be sold in the open market by the applicants, indicating prima facie production for the client. It further held, at the stay stage, that the activity did not amount to manufacture under the Central Excise Act, 1944, and that the exclusion from Business Auxiliary Service appeared to be confined to manufacture within that Act. The Tribunal also observed that the taxable value under section 67 of the Finance Act, 1994 could prima facie extend to the amount attributable to conversion activity, and that the cited authorities on bottling and packing were not directly applicable.

Conclusion: Complete waiver of pre-deposit was declined. The applicants were directed to deposit Rs. 50,00,000, with waiver and stay granted for the balance on compliance.

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