2008 (1) TMI 105 - AT - Service Tax

Tribunal rules powder coating activities exempt from Service Tax under Business Auxiliary Services

The Tribunal found in favor of the appellants regarding the leviability of Service Tax under 'Business Auxiliary Services' on powder coating processes. ... Levy of Service Tax as Business Auxiliary Services - Process versus manufacture - Exclusion of value of goods and materials from taxable value - Penalty not justified where issue involves interpretation of lawLevy of Service Tax as Business Auxiliary Services - Process versus manufacture - Activity of powder coating is not manufacture and is leviable to Service Tax under the category of Business Auxiliary Services. - HELD THAT: - The Tribunal accepted the DGCEI clarification and relied on precedent holding that surface treatment processes which do not result in emergence of a new commodity do not amount to manufacture. Applying that principle, powder coating of furniture, electric panel boards and other metallic articles undertaken on job-work basis does not convert the articles into a new commodity; hence the activity falls within Business Auxiliary Services and is liable to Service Tax. The Tribunal therefore affirmed liability of the appellants to pay Service Tax on the said activity. [Paras 3, 4]Powder coating held not to be manufacture; Service Tax under Business Auxiliary Services is leviable on the activity.Exclusion of value of goods and materials from taxable value - Notification No.29/2007 excludes the value of goods and materials sold to the customer from the taxable value and that benefit must be given; remand ordered for re-computation after deduction. - HELD THAT: - The appellants relied on Notification No.29/2007 which excludes the value of goods and materials sold to the customer from the taxable value. The Tribunal directed that the Original Authority must re-compute the Service Tax liability after deducting the value of goods and materials sold to customers, upon production of evidence by the appellants showing such values. The remand is for the limited purpose of re-calculation of tax liability in light of the Notification and the evidence to be furnished by the appellants. [Paras 5]Matter remanded to Original Authority to re-calculate Service Tax after deducting value of goods and materials sold to customers and on production of evidence; benefit of Notification to be given.Penalty not justified where issue involves interpretation of law - Penalty imposed on the appellants is not justified because the dispute involves interpretation of law. - HELD THAT: - The Tribunal observed that since the controversy turns on interpretation of law (whether the process amounts to manufacture and the applicability of the Notification), the imposition of penalty is not warranted. Accordingly, the Tribunal set aside the penalty imposed by the lower authority while remanding the matter for re-computation of tax liability. [Paras 5]Penalty quashed as not justified in view of the legal interpretation involved.Final Conclusion: Appeal allowed; impugned orders set aside. Tax liability to be recomputed by the Original Authority within two months after deducting the value of goods and materials sold to customers upon production of evidence; penalty set aside. Issues:Leviability of Service Tax under 'Business Auxiliary Services' on powder coating processes undertaken by the appellants.Analysis:The appeals were filed against Orders-in-Appeal passed by the Commissioner of Central Excise, Customs & Service Tax. The issue involved in both appeals was the leviability of Service Tax under 'Business Auxiliary Services' on the processes undertaken by the appellants. The appellants were engaged in powder coating activities on various metallic items supplied by their clients on a job work basis. The amendment in the definition of 'Business Auxiliary Services' included production or processing of goods for clients, not amounting to manufacture, under the purview of Service Tax liability.The DGCEI clarified that powder coating falls under 'Business Auxiliary Services' and does not amount to manufacture. The Revenue cited case laws where similar activities were held not to amount to manufacture, such as galvanization and electroplating processes. The Tribunal agreed with the Revenue that powder coating does not amount to manufacture, making the appellants liable to pay Service Tax on the activity. The appellants sought exemption of the cost of materials from Service Tax payment, which was considered under a relevant Notification.After a careful consideration, the Tribunal found that the appellants were entitled to exemption under Notification No.29/2007, which excluded the value of goods and materials sold to customers. The Tribunal remanded the matter to the Original Authority for re-calculation of Service Tax liability after deducting the value of goods sold to customers. The appellants were directed to provide evidence of the value of goods sold. The penalty imposed was deemed unjustified, and the Tribunal allowed the appeal, setting aside the impugned order and remanding it for re-computation of tax liability within two months.