2024 (1) TMI 774 - AT - Service Tax

Manufacturing goods using own plant doesn't constitute management maintenance repair service under service tax

Gujarat Insecticides Ltd Versus C.C. E-Bharuch

Gujarat Insecticides Ltd Versus C.C. E-Bharuch - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the activities carried out by the appellant, using its own plant and machinery to manufacture excisable goods on behalf of a principal manufacturer, constitute 'Management, Maintenance or Repair' service under the service tax law. 2. Whether the arrangement between the parties, where inputs and packaging material are supplied by the principal manufacturer and production is undertaken by the appellant on job-work basis, results in a taxable service (business auxiliary service) or is to be treated as manufacture of excisable goods exempt from service tax. 3. Whether earlier decisions of the Tribunal in the appellant's own case on identical facts for prior periods are binding and require follow-up (judicial discipline) in the present periodical demand. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Characterisation as 'Management, Maintenance or Repair' service Legal framework: 'Management, maintenance or repair' is defined in terms of services provided by any person under a contract or agreement, or by a manufacturer or any person authorised by him, in relation to management, maintenance or repair of properties or maintenance/repair (including reconditioning, restoration or servicing) of goods (excluding motor vehicles). The definition includes clarifying explanations that 'goods' includes computer software and 'properties' includes information technology software. Precedent treatment: The Tribunal's earlier orders on identical facts (for prior periods) held that where the plant/machinery belongs to the service provider who uses it to manufacture excisable goods on behalf of the principal manufacturer, the activity cannot be classified as Management, Maintenance & Repair service. The present decision follows those earlier orders. Interpretation and reasoning: The Court emphasises that the key condition for classifying an activity as Management, Maintenance & Repair is that the plant or property subject to management/maintenance/repair must belong to the service recipient, not the service provider. In the present factual matrix the plant, machinery and equipment used for production belong to the appellant (service provider). The appellant uses its own manufacturing facilities to produce excisable goods for the principal manufacturer. Hence, by plain reading of the statutory definition, the activity does not fall within Management, Maintenance & Repair service. Ratio vs. Obiter: Ratio - The legal proposition that Management, Maintenance & Repair service requires the property managed/maintained/repaired to belong to the service recipient, and that use of the service provider's own plant for manufacturing on behalf of a client does not amount to such a service. Obiter - ancillary observations about exclusivity of use (whether the plant is used exclusively for the client or not) are explanatory and not essential to the main ratio, since the ownership and nature of activity (manufacture) are determinative. Conclusion: The demand framed under Management, Maintenance & Repair service is not sustainable on the factual matrix where the appellant's own plant/machinery is used to manufacture excisable goods for the principal manufacturer. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Characterisation as business auxiliary service vs. manufacture of excisable goods Legal framework: Business auxiliary service includes, inter alia, production or processing activities done on behalf of a client; however, the definition excludes 'manufacture of excisable goods' as defined under section 2(f) of the Central Excise Act, 1944. Further, relevant Cenvat Credit Rules and Notification No. 08/2005-ST (exemption) govern the treatment of job-work and business auxiliary services. Precedent treatment: The Tribunal in earlier orders found that where the activities amount to manufacture of excisable goods (within section 2(f) CEA, 1944), such activity is excluded from the definition of business auxiliary service and therefore not taxable as a service; additionally, when conditions of relevant notifications and rules are satisfied (e.g., Rule 4(5)(a) of Cenvat Credit Rules), the business auxiliary service (if even hypothetically attracted) is exempt under Notification No. 08/2005-ST. Interpretation and reasoning: The Court finds that the appellant carried out bona fide manufacture of excisable goods on a job-work basis: inputs and packing materials were supplied by the principal manufacturer to the appellant under the statutory rule; the production activity undertaken by the appellant is manufacture within the meaning of section 2(f) CEA, 1944. Consequently, such manufacture is expressly excluded from the definition of business auxiliary service. Even if the activity were considered business auxiliary service (production/processing on behalf of the client), the notification exempts the same when conditions are fulfilled. The adjudicating authority's emphasis on exclusive use of the plant for the client does not alter the legal characterisation where the plant is owned by the service provider and the activity is manufacture on job-work basis. Ratio vs. Obiter: Ratio - Manufacture of excisable goods carried out by a job-worker using its own plant, with inputs supplied by the principal manufacturer under relevant rules, cannot be characterised as business auxiliary service; such manufacture is excluded from business auxiliary service and not liable to service tax. Additionally, where statutory notifications/exemptions apply on identical facts, a service tax demand cannot be sustained. Obiter - Comments on exclusivity of plant use and stress on particular factual emphases of the adjudicating authority are persuasive but not essential to the core holding. Conclusion: The activity is manufacture of excisable goods on job-work basis and thus outside the scope of business auxiliary service; alternatively, such business auxiliary service (if invoked) is exempt under the applicable notification. Hence, service tax demand on this ground is unsustainable. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Binding effect of prior Tribunal decisions in appellant's own case Legal framework: Principle of judicial discipline requires consistency in adjudication where facts and legal issues are identical; earlier final orders of the same Tribunal on identical facts ordinarily bind subsequent adjudications absent distinguishing features. Precedent treatment: The Tribunal relied on its earlier final orders on the appellant's previous periods which decided the identical legal issue in favour of the appellant. The present appeal presents only a difference of period; all material facts and legal questions remain the same. Interpretation and reasoning: The Court holds that since earlier Tribunal orders on identical facts reached the conclusion that the demand under Management, Maintenance & Repair and/or service tax is unsustainable, the present demand must be set aside following judicial discipline. No distinguishing factual circumstances or legal developments were demonstrated by the Revenue to justify departure from the earlier decisions. Ratio vs. Obiter: Ratio - Where earlier Tribunal decisions on identical facts are binding, the same legal conclusion must be followed in subsequent periods; absence of any distinguishing feature mandates adherence. Obiter - None beyond reiteration of the conclusion. Conclusion: The issue is no longer res integra; the Tribunal follows its prior rulings and sets aside the impugned orders for the period in question. OVERALL CONCLUSION OF THE TRIBUNAL On the combined reasoning: (a) the activities constitute manufacture of excisable goods by the appellant using its own plant on behalf of the principal manufacturer and are excluded from business auxiliary service; (b) the conditions of applicable notifications/rules further support non-liability in the alternative; and (c) prior identical Tribunal decisions bind the present determination. Accordingly, the service tax demand framed under Management, Maintenance & Repair or business auxiliary service is unsustainable and the impugned orders are set aside.