Processing activities like cutting, grinding, drilling constitute manufacturing not business auxiliary service under job work

CESTAT Kolkata held that processing activities of cutting, grinding, drilling and machining of forged black wheels/axles supplied by steel plant constituted manufacturing rather than business auxiliary service. The tribunal relied on precedent establishing that shifting and transportation of materials within plant premises does not fall under taxable cargo handling services. Since the appellant performed manufacturing activities on job work basis and goods suffered duty at principal manufacturer level, service tax demand under business auxiliary service category was unsustainable. Appeal allowed, impugned order set aside.

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Issues Involved:
1. Whether the activity of processing forged black wheels/axles amounts to manufacture.
2. Liability to pay Service Tax under the category of "business auxiliary service."
3. Applicability of the exemption under Notification No. 8/2005 dated 01.03.2005.
4. Demand for shifting, transportation, loading, and unloading services within the client's plant.

Summary:

1. Whether the activity of processing forged black wheels/axles amounts to manufacture:
The appellant engaged in cutting, grinding, drilling, and machining of forged black wheels/axles supplied by M/s. Durgapur Steel Plant. The Revenue contended that this activity does not amount to manufacture, thus attracting Service Tax under "business auxiliary service." However, the Tribunal referred to the case of M/s. Ferro Scrap Nigam Limited, where it was held that such activities on job work basis amount to manufacture. Therefore, the Tribunal concluded that the appellant's activities amount to manufacture.

2. Liability to pay Service Tax under the category of "business auxiliary service":
The Tribunal examined the definition of "business auxiliary service" (BAS) under Section 65(19) of the Finance Act, 1994, which requires the service to be provided on behalf of the client involving three parties. The Tribunal found that the appellant's activity does not meet this criterion as there is no third party involved. The Tribunal cited several precedents, including Auto Coats and Sonic Watches Ltd., which supported the view that job work activities involving only two parties are not taxable under BAS.

3. Applicability of the exemption under Notification No. 8/2005 dated 01.03.2005:
For the period after 16.06.2005, the Tribunal noted that the definition of BAS was amended to include "processing" of goods. The appellant claimed exemption under Notification No. 8/2005, which exempts services involving production or processing of goods using raw materials or semi-finished goods supplied by the client, provided the processed goods are returned to the client for further manufacturing. The Tribunal accepted the appellant's claim, supported by a certificate from M/s. SAIL, Bokaro Steel Plant, confirming the return and use of processed scrap in manufacturing dutiable steel products. Thus, the Tribunal held that the appellant is entitled to the exemption.

4. Demand for shifting, transportation, loading, and unloading services within the client's plant:
The Tribunal referred to its own decision in the appellant's case reported in 2014 (1) TMI 1051-CESTAT-New Delhi, where it was held that services of shifting, transportation, loading, and unloading within the plant do not fall under "Cargo Handling Services." Consequently, the demand for these services was not sustainable.

Conclusion:
The Tribunal set aside the impugned order, holding that the appellant's activities amount to manufacture, and the demand for Service Tax under "business auxiliary service" is not sustainable. The appellant is entitled to exemption under Notification No. 8/2005, and the demand for shifting, transportation, loading, and unloading services within the plant is also not sustainable. The appeal filed by the appellant was allowed with consequential relief, and the appeal filed by the Revenue was rejected.

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