2024 (5) TMI 9 - AT - Service Tax

Crushing lumps into powder constitutes manufacturing under Section 2(f) creating excisable goods liable for duty

M/s Vimal Coating Limited Versus C.S.T. - Ahmebadab-iii And M/s Vim Coats Pvt Ltd Versus C.S.T. - Ahmebadab-iii

CESTAT Ahmedabad held that crushing of lumps into powder constitutes manufacturing activity under Section 2(f) and Chapter Note 2 of Chapter 25. The ... Nature of activity - manufacture or service - Activity amounting to manufacture or not - crushing of lumps - time limitation - HELD THAT:- As per the Section 2(f) from the sub-clause (ii) of Section 2(f), it is clear that in relation to any goods in the section or Chapter notes if the activity is specified as amounting to manufacture is resultant goods will qualify as manufactured goods. In the present case also as per Chapter Note i2) under Chapter 25, the crushed ground powdered form of the product covered under chapter heading 2501, 2503 and 2505 is a manufacturing activity. Therefore, the appellant’s activity is clearly a manufacturing activity. Support derived for the case of SN. SUNDERSON (MINERALS) LTD. VERSUS SUPTD. (PREVENTIVE), C. EX., INDORE [1994 (3) TMI 111 - HIGH COURT OF MADHYA PRADESH] where it was held that the operation of crushing brings into existence a new product which has a different name, character and use. Process in this case is `manufacture' of lime stone chips which are excisable goods liable for duty under Chapter 25 of the Central Excise Tariff Act, 1985 at the rate of 12 per cent. The Collector, Central Excise, is right in levying duty on lime stone chips. From the above, it can be seen that any activity that amounts to manufacture of excisable goods is excluded from the definition. As discussed above, we arrive at a conclusion that the crushing of lumps into powder is an activity amounts to manufacture, when this being so, the manufacturing activity is excluded from the definition of Business Auxiliary Service, therefore, no service tax under the said head shall sustain. Time Limitation - HELD THAT:- Considering the nature of the goods, the demand for the extended period was set aside in various cases - reliance can be placed in the case of Hindustan Construction Company Limited [1996 (9) TMI 156 - CEGAT, COURT NO. II, NEW DELHI] dealing with the issue that whether the crushing of stones into stones of smaller size amounts to manufacture, classifiable under sub-heading 2505 as in the present case, the Larger Bench by majority of order though held that the activities amount to manufacture but the demand for the extended period was set aside. The demand is not sustainable on limitation also - the impugned orders are not sustainable - Appeal allowed. Issues Involved:1. Whether the activity of crushing of lumps amounts to manufacture u/s 2(f) of Central Excise Act, 1944.2. Whether the appellant is liable to pay service tax under Business Auxiliary Service.3. Whether the extended period for demand and imposition of penalty is applicable.Summary:Issue 1: Whether the activity of crushing of lumps amounts to manufacture u/s 2(f) of Central Excise Act, 1944.The appellants argued that their activity of crushing lumps constitutes manufacturing as defined u/s 2(f) of the Central Excise Act, 1944. They relied on various judgments, including Nilgiri Oil & Allied Industries, S.N. Sunderson (Mineral) Ltd., and Eastern Mineral, which support the notion that crushing lumps into powder amounts to manufacture. The Tribunal noted that Chapter Note 2 under Chapter 25 specifies that crushing and grinding of products under headings 2501, 2503, and 2505 is considered manufacturing. Thus, the Tribunal concluded that the appellant's activity of crushing lumps indeed amounts to manufacture.Issue 2: Whether the appellant is liable to pay service tax under Business Auxiliary Service.The Revenue contended that the appellant is liable to pay service tax under the head of Business Auxiliary Service, as the goods cleared under Chapter 25 attract nil duty, making the exemption notification no. 08/2005-ST inapplicable. However, the Tribunal found that since the crushing of lumps amounts to manufacture, it is excluded from the definition of Business Auxiliary Service u/s 65(19) of the Finance Act. Therefore, no service tax is leviable on the appellant.Issue 3: Whether the extended period for demand and imposition of penalty is applicable.The appellant argued that the issue pertains to the interpretation of statutory provisions, supported by various judgments, and hence, the extended period for demand and penalty should not apply. The Tribunal agreed, citing the judgment in Hindustan Construction Company Limited, which set aside the demand for the extended period on similar grounds. Consequently, the Tribunal found the demand unsustainable on the grounds of limitation as well.Conclusion:The Tribunal set aside the impugned orders, concluding that the appellant's activity of crushing lumps amounts to manufacture, thereby excluding it from the definition of Business Auxiliary Service. Additionally, the demand and penalties imposed were deemed unsustainable due to the limitation period. The appeals were allowed with consequential relief in accordance with the law.