Loan licensee not liable for service tax under business auxiliary service for drug manufacturing. Tribunal sets aside demand.

The Tribunal held that the appellant, engaged in manufacturing drugs as a loan licensee, was not liable to pay service tax under the category of business auxiliary service. The manufacturing activity of drugs on behalf of the principal was deemed an excisable activity and not taxable under business auxiliary service, as it fell under the definition of "manufacture" per the Central Excise Act. The demand for service tax was found to be based on an incorrect understanding of the law, and the Tribunal set aside the demand, allowing the appeal with consequential relief.

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Issues involved:
The issue involves liability to pay service tax under the category of business auxiliary service on the gross amount received for the manufacture and supply of drugs that are exempt from central excise duty.

Summary:
The appellant, engaged in manufacturing drugs as a loan licensee, was held liable to pay service tax under the category of business auxiliary service. The appellant contended that the manufacturing activity is excluded from the definition of Business Auxiliary Service as it falls under excisable goods manufacturing. The Tribunal found that the activity of manufacturing drugs on behalf of the principal is an excisable activity and not taxable under business auxiliary service. The Revenue's reliance on exemption Notification No. 08/2005-ST was deemed irrelevant as the activity did not fall under the definition of business auxiliary service. The Tribunal set aside the demand of service tax, allowing the appeal with consequential relief.

The Tribunal analyzed the definition of Business Auxiliary Service under the Finance Act, 1994, highlighting that production of goods on behalf of the client is taxable unless it amounts to "manufacture" as per Section 2 (f) of the Central Excise Act, 1944. The Tribunal concluded that the manufacturing activity of drugs, falling under Section 2 (f), cannot be classified as a taxable service under business auxiliary service.

The Tribunal noted that the demand for service tax was based on the incorrect understanding of the definition of business auxiliary service, particularly regarding the production of goods on behalf of the client. It clarified that all production activities other than those amounting to manufacture under Section 2 (f) of the Central Excise Act, 1944, would be taxable under business auxiliary service. The Tribunal emphasized that the exemption Notification No. 08/2005-ST was irrelevant since the activity did not fall under the definition of business auxiliary service.

In conclusion, the Tribunal found the demand for service tax unsustainable, setting aside the impugned order and allowing the appeal with any consequential relief in accordance with the law. The decision was pronounced in open court on 17.08.2023.

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