2009 (5) TMI 59 - AT - Service Tax

Electricity Production Deemed 'Manufacture' for Tax Exemption

The Tribunal held that electricity production constitutes 'manufacture' under Section 2(f) of the Central Excise Act, exempting the Appellants from ... BAS - Job Work – manufacturing activity – electricity - held that - that it is a settled position of law that “electricity” is manufactured goods - Appellants have manufactured “electricity” which is a manufactured product and have, therefore, satisfied the definition of Section 2 (f) of the Central Excise Act, 1944. Hence, they are not liable to pay any Service Tax under the category of ‘Business Auxiliary Service’ Issues:1. Interpretation of the definition of 'manufacture' under Section 2(f) of the Central Excise Act, 1944.2. Application of the definition of 'Business Auxiliary Service' and liability to pay Service Tax on electricity production.Analysis:1. The Appellate Tribunal considered the interpretation of the definition of 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The Adjudicating Commissioner held that the Appellants were producing electricity, which qualifies as manufacture under Clause (i) of Section 2(f). However, as they did not satisfy Clause (ii), they were deemed liable to Service Tax under the exclusion in the definition of 'Business Auxiliary Service.'2. The Appellants argued that the inclusive definition of manufacture under Section 2(f) does not require satisfaction of both conditions simultaneously. They relied on legal precedents, including a Tribunal decision in the case of CMS (I) Operations & Maintenance Co. P. Ltd., which established that electricity is considered manufactured goods. The Appellants contended that since they manufactured electricity, they did not provide any 'Business Auxiliary Service' subject to Service Tax.3. The Revenue, represented by the Joint Commissioner of Central Excise, maintained that both inclusive definitions under Section 2(f) needed to be fulfilled, as indicated by the conjunction 'and.' They argued in favor of upholding the impugned Order and suggested deferring the decision due to the significant revenue involved.4. The Tribunal analyzed the arguments and legal positions presented. They noted that the definition of manufacture under Section 2(f) is inclusive, and it is not mandatory for all inclusive conditions to be met simultaneously. Referring to the precedent set by the Tribunal in the CMS (I) Operations & Maintenance Co. case, the Tribunal concluded that electricity qualifies as a manufactured product. As no contradictory superior court decision was presented, the Tribunal held that the Appellants had indeed manufactured electricity, satisfying the definition of Section 2(f) and thus were not liable to pay Service Tax under 'Business Auxiliary Service.' Consequently, the impugned Order was set aside, and the Appeals were allowed.In conclusion, the Tribunal's decision clarified the interpretation of the definition of 'manufacture' under the Central Excise Act and its application to the liability of Service Tax on electricity production, ultimately ruling in favor of the Appellants based on established legal principles and precedents.