Manufacture vs service tax: boiler component job-work was treated as manufacture and excluded from Business Auxiliary Services.

Labour charges for cutting, shearing, bending, punching, welding and allied operations on boiler parts were examined for service tax exposure under Business Auxiliary Services. The activity converted steel plates and sheets into boiler components for further assembly, changing the identity of the goods and amounting to manufacture. As activities amounting to manufacture are excluded from Business Auxiliary Services under Section 65(19) of the Finance Act, 1994, the job-work was treated as outside the service tax levy. The arrangement was also viewed as covered by Notification No. 214/86-CE, under which the principal manufacturer bears the excise obligation. The service tax demand was therefore held unsustainable.

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Issues: Whether the labour charges received for cutting, shearing, bending, punching, welding and allied operations on boiler parts were liable to service tax under Business Auxiliary Services, or whether the activity amounted to manufacture and was excluded from the levy.

Analysis: The activity undertaken resulted in conversion of steel plates and sheets into boiler components intended for further assembly, and therefore changed the identity of the goods. The definition of Business Auxiliary Services under Section 65(19) of the Finance Act, 1994 excludes activities amounting to manufacture of excisable goods. The job-work arrangement was also treated as covered by Notification No. 214/86-CE, under which the principal manufacturer bears the excise obligation. Following the earlier decision on similar work and the view taken for the subsequent period, the activity was held to be manufacture and not a taxable service.

Conclusion: The demand of service tax was not sustainable and was set aside in favour of the assessee.

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