2017 (8) TMI 837 - AT - Service Tax

Tribunal rules rubber lining services as job work, overturns tax liability, penalties revoked

M/s. Hitech Industrial Lining Pvt. Ltd. Versus Commissioner of Central Excise, Salem

The Tribunal ruled in favor of the appellants, finding that their activities of rubber lining and re-rubber lining constituted job work amounting to ... Business Auxiliary Services - whether the appellants are liable to pay service tax under Business Auxiliary Service with effect from 10.9.2004 for the activity of rubber linings of pipes and fittings supplied to M/s. Kudremukh Iron and Ore Company Ltd. and related works? - Held that: - It is clear that the appellant was only discharging job work much amounted to processing of goods and therefore did not involve any production of goods. The amendment was brought forth with effect from 16.6.2005 to include the production or processing of goods for, or on behalf of, the client. Thus, the activity of the appellant has become taxable with effect from 16.6.2005. On perusal of records only one invoice falls beyond the period of 16.6.2005 upon which the service tax levy has to be sustained, which we hereby do - In respect of demand prior to the period 16.6.2005, for the discussions made above, the demand is unsustainable - appeal allowed - decided partly in favor of appellant. Issues:Whether the appellants are liable to pay service tax under Business Auxiliary Service for rubber linings of pipes and fittings supplied to a company and related works.Analysis:The issue in this case revolves around the liability of the appellants to pay service tax under Business Auxiliary Service for the activity of rubber linings of pipes and fittings supplied to a specific company and related works. The Department contended that the appellants should discharge service tax for the activities carried out by them, leading to the issuance of a show cause notice for the period in question. The original authority confirmed the demand, along with interest and penalties under relevant sections of the Finance Act, 1994. The crux of the matter lies in whether the appellants' activities amount to production of goods on behalf of the client, thus falling under the purview of Business Auxiliary Service.The appellant's counsel argued that the amendments to the definition of Business Auxiliary Service, particularly the inclusion of production or processing of goods for, or on behalf of, the client from a specific date, impacted the applicability of service tax to the appellants' activities. The counsel relied on a judgment in a similar case to support the argument that the activities carried out by the appellants prior to the specified date should be considered as processing of goods rather than production on behalf of the client. The counsel contended that the demand before the effective date of the amendment should be set aside, and penalties imposed should be revoked.Upon careful consideration, the Tribunal found merit in the appellant's argument. The Tribunal noted that the activities undertaken by the appellants, namely rubber lining and re-rubber lining, constituted job work amounting to processing of goods rather than production on behalf of the client. The Tribunal referenced a previous judgment to support this finding, emphasizing that prior to the amendment, activities undertaken by a person for another were not taxable under Business Auxiliary Service. The subsequent amendment explicitly brought the appellants' activities under the taxable ambit from a specified date, with only one invoice falling beyond that date subject to service tax levy.Consequently, the Tribunal set aside the demand for the period before the effective date of the amendment, upheld the service tax liability for the relevant invoice falling after the amendment, and revoked all penalties imposed. The appeal was partly allowed in favor of the appellant based on the detailed analysis of the amendments and the nature of the activities carried out by the appellants.