2024 (10) TMI 384 - AT - Service Tax

Manufacturing activities like segregating, sizing and packaging metal products fall under Central Excise Act Section 2(f), not Service Tax provisions.

M/s. Deepak & Co. Versus Commissioner of Central Excise and Service Tax, Durgapur Commissionerate

CESTAT Kolkata held that appellant's activity of segregating metal and slag, sizing and packaging of Fe-Mn/Fe-Si-Mn/HCFC products constituted ... Classification of service - Nature of activity - manufacture or business auxiliary service? - marketibility of the product - interest - penalty - HELD THAT:- The appellant has been undertaking the activity of segregation of metal and slag, sizing and packaging, as per the requirement of their customers. It is observed that the activity of sizing and packaging is an essential process, which makes the final product viz. Fe-Mn/Fe-Si-Mn/HCFC, marketable. It is observed that in order to classify the activity as liable to service tax, the said activity should fall under any of the above sub-clauses. According to the ld. adjudicating authority, the activity undertaken by the appellant falls under sub-clause (v) of Section 65(19). However, the appellant has submitted that as per the definition cited above, ‘business auxiliary service’ does not include any activity that amounts to ‘manufacture’. According to the appellant, the activity undertaken by them amounts to ‘manufacture’ and hence it goes out of the purview of the definition of ‘business auxiliary service’. It is required to be examined whether the activity undertaken by the appellant amounts to ‘manufacture’ or not, as defined under section 2(f) of the Central Excise Act, 1944. It is found that the definition of ‘manufacture’ as provided under Section 2(f) is wide enough to cover all processes which create a change in the product whereby a new product emerges in the end, which is marketable. In the present case, the appellant is undertaking the work of sizing and packaging and these are essential processes required to make the product marketable. Accordingly, the activity undertaken by the appellant falls squarely within the ambit of the definition of ‘manufacture’ as defined under Section 2(f) of the Central Excise Act. Once the activity is held as amounting to ‘manufacture’, it is excluded from the purview of Service Tax as per the definition of ‘business auxiliary service’. Thus, the demand of Service Tax under the category of ‘business auxiliary service’ is not sustainable. Since the demand itself is not sustainable, the question of demanding interest and imposing penalties does not arise. The impugned order is set aside - appeal allowed. Issues:Classification of service for taxation as 'business auxiliary service' or 'manufacture.'Analysis:The case involves a dispute regarding the classification of services provided by the appellant for taxation purposes. The Revenue alleged that the appellant was engaged in the production/processing of goods on behalf of clients, falling under the definition of 'business auxiliary service.' A Show Cause Notice was issued, demanding Service Tax. The Ld. Commissioner confirmed the demand, imposing penalties as well.The appellant argued that their activities constituted 'manufacture' under the Central Excise Act, exempting them from Service Tax. They also cited Notification No. 08/2005-S.T. for exemption. The Tribunal observed that the appellant's activities of segregating metal, sizing, and packaging were essential processes making the final product marketable.The Tribunal analyzed the definitions of 'business auxiliary service' and 'manufacture.' It noted that the appellant's activities fell within the definition of 'manufacture' under Section 2(f) of the Central Excise Act, involving processes creating a change in the product to make it marketable. As such, the activities were excluded from 'business auxiliary service,' rendering the Service Tax demand unsustainable.Consequently, the Tribunal set aside the demands, allowing the appellant's appeal. Since the demand was deemed unsustainable, no interest or penalties were imposed. The decision was pronounced in favor of the appellant on 08.10.2024.