2024 (2) TMI 968 - AT - Service Tax

Tribunal rules steel cutting is manufacturing, dismisses service tax demands on job-work and incidental charges. Appeal allowed.

M/s R.S.D. Steel Industries Versus The Commissioner of CGST & Central Excise, Jalandhar

The Tribunal ruled in favor of the appellants, determining that the job-work they performed, specifically cutting steel coils/plates, constituted ... Nature of activity - activity amounting to manufacture of providing of services - Classification of services - Business Auxiliary Service, Business Support Service and Renting Services or not - appellants were engaged in providing the servies to their customers who have sent the said plates/ coils for cutting - Demand on handling charges and rent charged - HELD THAT:- The appellants are job-workers inasmuch as they are cutting the coils/ plates of their clients according to the specifications given to them; they are collecting job charges for the same; they are discharging service tax on the coils/ plates which are ultimately used in the manufacture of non-excisable goods by their clients; they have not discharged service tax on the goods which were ultimately used in the manufacture of excisable goods which are cleared on payment of duty by their clients. Learned Counsel for the appellants argues that the job-work undertaken by them amounts to manufacture in view of the decision of the Tribunal in the case of JINDAL STAINLESS STEELWAY LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIGAD [2014 (9) TMI 658 - CESTAT MUMBAI], where it was held that the activity of the appellant is amount to manufacture and appeal was allowed on the merit as well as on limitation. It is found that as the job-work undertaken by the appellant amounts to manufacture, service tax cannot be levied on them under both Heads “Business Auxiliary Service” and “Business Support Service”. Therefore, any discussion on other issues like cumduty price, extended period, small-scale exemption become redundant and therefore, other issues not taken up. Demand on handling charges and rent charged - HELD THAT:- It is found that they are incidental to the job-work and it cannot be alleged that they are providing separately these services. It is not the case of the Department that the appellants are providing these services separately to different clients. Moreover, even if it is construed that the appellant is providing a bundle of services, the main service i.e. job-work of cutting plates/ coils is to be considered for levy of service tax. In view of the aforesaid reasoning, the job-work undertaken by the appellants does not attract levy of any service tax. Thus, the job-work undertaken by the appellants does not attract levy of any service tax - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the job-work of cutting steel coils/plates pursuant to specifications supplied by clients amounts to 'manufacture' for service taxation purposes, thereby excluding the activity from levy under 'Business Auxiliary Service' and 'Business Support Service'. 2. Whether handling charges and storage/renting charges levied in addition to job charges constitute distinct taxable services (e.g., Renting Services / Business Support Services) or are incidental to the job-work and therefore not separately taxable. 3. Whether ancillary issues raised by the parties - viz., cum-duty valuation benefit, applicability of small-scale exemption notifications, and invocation of extended period of limitation - require adjudication once the core question of manufacturing nature of the job-work is resolved. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the job-work amounts to manufacture and thus is outside levy under 'Business Auxiliary Service' and 'Business Support Service'. Legal framework: Post-Negative List regime and the statutory scheme treat services that 'amount to manufacture or production of goods' as falling under the Negative List; prior notifications exempted production of goods on behalf of a client where excise duty is payable on the final product. The taxonomy of taxable services includes 'Business Auxiliary Service' and 'Business Support Service' which, if applicable, attract service tax unless excluded by the manufacture/prodution character. Precedent Treatment: The Tribunal relied on an earlier Tribunal decision which held identical job-work activity (cutting coils/plates to client specifications) to amount to manufacture; that earlier finding was accepted by Revenue in related proceedings and used by Commissioner in dropping proceedings in another matter. The present decision follows that Tribunal precedent. Interpretation and reasoning: The Tribunal found the appellants perform job-work consisting of cutting raw material according to client specifications, receiving job charges, and producing goods that are either used in non-excisable manufacture or cleared on payment of duty when used in excisable manufacture. The nature of the process - transformation by cutting into specified dimensions - was treated as amounting to manufacture rather than a mere service. Because the activity constitutes manufacture, the labels 'Business Auxiliary Service' and 'Business Support Service' are inapplicable for levying service tax on the core job-work. Ratio vs. Obiter: Ratio - Where a job-worker's process results in transformation of goods amounting to manufacture (as found on facts), the activity is not liable to service tax under Business Auxiliary/Business Support Service headings. Obiter - detailed discussion of notifications and negative-list technicalities unnecessary once the manufacturing character is established; thus ancillary legal points discussed by parties are not adjudicated on merits. Conclusion: The Tribunal concluded the job-work constitutes manufacture; therefore, service tax cannot be levied on the core job-work under the impugned service heads. Issue 2: Taxability of handling charges and storage/rent charges charged along with job-work. Legal framework: Taxability of ancillary charges turns on whether they constitute separate services provided independently (and hence taxable), or are incidental components of the main service (and thus taxable only if the main service is taxable). Precedent Treatment: No separate precedent was necessary beyond the general principle that incidental charges forming part of a composite contract are treated in light of the dominant service. Interpretation and reasoning: The Tribunal found handling and storage/renting charges were incidental to the job-work and not shown to be provided separately to different clients as standalone services. Even if a bundle of services were to be assumed, the dominant element is the job-work of cutting plates/coils. Since the dominant service was held to amount to manufacture (non-taxable under the cited service heads), the incidental charges could not be taxed separately as distinct services. Ratio vs. Obiter: Ratio - Incidental handling and storage charges, when integrated with and ancillary to a dominant manufacturing-character job-work, do not attract service tax separately under the contested service heads. Obiter - Consideration of hypothetical bundling of services noted but not necessary to determine taxability given the dominant-service finding. Conclusion: Handling and storage/rent charges are incidental to the job-work and do not attract service tax in the facts of this matter. Issue 3: Necessity of adjudicating cum-duty valuation, small-scale exemption notifications, and extended period once manufacture character is established. Legal framework: Valuation (cum-duty benefit), applicability of small-scale exemption notifications, and limitation/extended period rules are ordinarily relevant when a service is found taxable; they determine quantum, exemption relief, or temporal reach of demand. Precedent Treatment: The Tribunal did not embark on detailed examination of these issues, treating them as consequential/adaptive to the primary finding on taxability. Interpretation and reasoning: Having concluded the job-work is manufacturing in character and therefore not taxable under the impugned service categories, the Tribunal held that further debates about valuation methodology, small-scale exemption thresholds, or invocation of extended period became redundant. The Tribunal expressly refrained from adjudicating those issues on merits. Ratio vs. Obiter: Obiter with respect to those ancillary issues - their consideration is unnecessary where the main legal bar to levy (manufacture character) disposes of tax liability. The statement that these issues are rendered redundant is part of the operative reasoning but not determinative of those issues themselves. Conclusion: Cum-duty valuation, small-scale exemption applicability, and extended period invocation were not decided because the primary conclusion that the job-work amounts to manufacture renders those questions academic. Disposition Because the job-work was held to amount to manufacture and the ancillary charges were incidental, the demand for service tax under the contested service heads was set aside and the appeal allowed with consequential relief as per law.