Appeal dismissed: Packaging process exempt from service tax under Reverse Charge Mechanism

The appeal was filed by the Revenue against dropping the demand of service tax under Reverse Charge Mechanism for services received from contractors engaged in packaging finished goods. The Commissioner held that the packaging process amounted to manufacturing exempted under section 66D of the Finance Act, 1994. The Tribunal concluded that the packaging activity constituted a manufacturing process exempt from service tax, rejecting the Revenue's appeal.

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Issues:
1. Appeal against dropping demand of service tax under Reverse Charge Mechanism.
2. Determination of whether the activity by contractors is 'Supply of Manpower Services' or a manufacturing process exempt under section 66D of the Finance Act, 1994.

Issue 1:
The appeal was filed by the Revenue against the Order-in-Original dropping the demand of service tax of Rs. 2,15,56,273 for the period 2012-13 to 2015-16. The investigation revealed non-payment of service tax under Reverse Charge Mechanism by the Respondent for services received from contractors engaged in packaging finished goods. The Commissioner held that the packaging process amounted to manufacturing exempted under section 66D of the Finance Act, 1994. The Revenue contended that Circular No. 190/9/2015-ST conditions for job work were not considered. The Respondent argued that the contractors were engaged in a manufacturing process, citing relevant judgments in their favor.

Issue 2:
The key issue was whether the activity by contractors constituted 'Supply of Manpower Services' or a manufacturing process exempt under section 66D of the Finance Act, 1994. The agreements with contractors indicated packaging of biscuits into carton boxes for marketability. The Central Excise Act defined 'manufacture' to include processes incidental to product completion, specified processes, and packaging for marketability. The Tribunal referenced a Karnataka High Court judgment supporting credit for packaging materials preserving product quality. The Tribunal concluded that the packaging activity constituted manufacturing exempt from service tax under section 66D. The Respondent's cited judgments and Circular 190/9/2015-Service Tax supported the position that the service was not 'Manpower Supply Service.'

The Tribunal analyzed the terms of the agreements, Central Excise Act definitions, and relevant case law to determine that the packaging activity by contractors constituted a manufacturing process exempt from service tax. The Respondent's reliance on judgments and Circular 190/9/2015-Service Tax was deemed appropriate, leading to the rejection of the Revenue's appeal.

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