2025 (4) TMI 244 - AT - Service Tax

Manufacturing activities like cutting, grinding, drilling of forged wheels constitute manufacturing process, not business auxiliary services under excise law.

M/s Mohata Coal Company (P) Ltd. Versus Commissioner of Customs, Central Excise & Service Tax, Durgapur

CESTAT Kolkata held that appellant's activities of cutting, grinding, drilling, and machining of forged black wheels/axles constitute manufacturing rather ... Nature of activity - manufacturing or business auxiliary service - activities of cutting, grinding, drilling, and machining of forged black wheels/axles - HELD THAT:- The issue is no more res integra and dealt in M/S. MOHATA COAL COMPANY (P) LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, BOLPUR COMMISSIONERATE [2024 (3) TMI 1166 - CESTAT KOLKATA] wherein it is held that the said activity undertaken by the appellant amounts to manufacture and the appellant is doing the said activity on job work basis and such job worked goods has suffered duty at the end of the principal manufacturer. In these circumstances, the demand of Service Tax under the category of “business auxiliary service” is not sustainable against the appellant. Conclusion - The appellant's activities do not qualify as taxable services under BAS. The activities are deemed to be manufacturing processes conducted on a job work basis, with the final products being subject to excise duty at the principal manufacturer's end. There are no merit in the impugned order and the same is set aside - appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment was whether the appellant's activities of cutting, grinding, drilling, and machining of forged black wheels/axles, supplied by M/s. Durgapur Steel Plant, amounted to a taxable service under the category of 'business auxiliary service' or if it constituted manufacturing, thereby exempting it from service tax liability.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe primary legal framework involved is the definition of 'business auxiliary service' (BAS) under Section 65(19) of the Finance Act, 1994, which includes services related to the production or processing of goods on behalf of a client. The judgment also references the Central Excise Act, 1944, particularly the definition of 'manufacture' under Section 2(f). The Tribunal's previous decisions in similar cases, including M/s. Ferro Scrap Nigam Limited and others, were pivotal in interpreting these definitions.Court's Interpretation and ReasoningThe Tribunal found that the appellant's activities did not fall under the definition of BAS for several reasons. Firstly, prior to the amendment in June 2005, the definition of BAS did not include 'processing' of goods, only 'production.' The Tribunal noted that production does not necessarily equate to manufacture, but manufacture includes production. Since the appellant's activities did not amount to manufacture, they did not meet the criteria for production under BAS. Secondly, the Tribunal emphasized that BAS involves services performed on behalf of a client, typically involving three parties. In this case, there were only two parties involved-the appellant and the principal manufacturer-indicating that the service was not performed on behalf of a third party.Key Evidence and FindingsThe Tribunal referenced its own prior decision in the appellant's case for an earlier period, which established that the activities were not taxable under BAS. It also cited a certificate from M/s. SAIL, Bokaro Steel Plant, confirming that the processed goods were returned and used in manufacturing dutiable steel products, thereby supporting the appellant's claim for exemption under Notification No. 8/2005.Application of Law to FactsThe Tribunal applied the definitions and criteria from the Finance Act and Central Excise Act to the appellant's activities. It concluded that since the activities did not amount to manufacture and were not performed on behalf of a third party, they did not fall under BAS. Furthermore, the Tribunal acknowledged the exemption provided by Notification No. 8/2005, which exempts processing activities from service tax if the processed goods are used in further manufacturing that incurs excise duty.Treatment of Competing ArgumentsThe Tribunal considered the Revenue's argument supporting the service tax demand but found it unpersuasive. The Tribunal relied on its previous decisions and relevant circulars that clarified the scope of BAS and the conditions under which service tax is applicable. The Tribunal systematically dismantled the Revenue's position by highlighting the lack of a third-party service relationship and the applicability of the manufacturing exemption.ConclusionsThe Tribunal concluded that the appellant's activities did not qualify as taxable services under BAS. The activities were deemed to be manufacturing processes conducted on a job work basis, with the final products being subject to excise duty at the principal manufacturer's end. Consequently, the demand for service tax was unsustainable.SIGNIFICANT HOLDINGSThe Tribunal reaffirmed that activities not amounting to manufacture but involving only two parties do not fall under BAS. It emphasized that the definition of BAS requires a service to be performed on behalf of a client, typically involving three parties. The Tribunal also upheld the applicability of Notification No. 8/2005, which exempts certain processing activities from service tax. The Tribunal's final determination was to set aside the impugned order and allow the appeal with consequential relief to the appellant.The Tribunal's decision underscores the principle that not all processing activities are taxable under BAS, particularly when they do not involve a third-party service relationship and when the processed goods are used in further manufacturing processes subject to excise duty.