Steel surface treatment at client sites constitutes manufacturing activity not business auxiliary service under job work arrangements

The CESTAT Kolkata held that the appellant's surface treatment of steel articles/structures constituted manufacturing activity rather than business auxiliary service. The appellant performed this treatment at sites/workshops for clients during 2005-2009. The Tribunal determined that the process created a new identifiable product, qualifying as manufacture under job work arrangements. Since the job worked goods already suffered duty at the principal manufacturer's end, the demand for service tax under business auxiliary service category was unsustainable. The appeal was allowed.

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Issues Involved:
1. Whether the activity undertaken by the appellant amounts to manufacture.
2. Whether the appellant is liable to pay service tax under the category of Business Auxiliary Service (BAS).

Summary:

Issue 1: Whether the activity undertaken by the appellant amounts to manufacture.

The appellant was engaged in the business of surface treatment of steel articles/structures provided by their clients. The process involved cleaning the steel surface, applying molten aluminum, primer, red oxide chromate paint, and aluminum paint. The Revenue contended that this activity falls under "Business Auxiliary Service" (BAS) and is taxable from 16.06.2005 to 30.09.2009. The appellant argued that the activity amounts to manufacture and cited the Tribunal's decision in M/s Mohata Coal Company (P) Limited, which held that similar activities amount to manufacture and the finished goods have suffered duty, thus no service tax is payable.

The Tribunal found that the process undertaken by the appellant creates a new identifiable product, which amounts to manufacture. This conclusion was supported by the Tribunal's decisions in M/s Ferro Scrap Nigam Limited and other cases, which clarified that activities resulting in production or processing of goods for the client, not amounting to manufacture, were only taxable post-amendment in June 2005. Prior to this, such activities were not taxable under BAS. The Tribunal also considered the exemption under Notification No. 8/2005 for activities post-16.06.2005, concluding that the appellant's activities qualified for this exemption as the processed goods were returned to the client for further manufacture of dutiable products.

Issue 2: Whether the appellant is liable to pay service tax under the category of Business Auxiliary Service (BAS).

The Tribunal held that since the activity undertaken by the appellant amounts to manufacture and was performed on a job work basis, with the final goods suffering duty at the principal manufacturer's end, the demand for service tax under BAS is not sustainable. This was further supported by the Tribunal's previous rulings, which established that such activities did not fall under BAS, especially in the absence of a third party in the transaction.

Conclusion:

The Tribunal set aside the impugned order and allowed the appeal, granting consequential relief to the appellant. The appellant was not liable to pay service tax under the category of Business Auxiliary Service.

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