Manufacture of exempt excisable goods cannot be taxed as a service when fabrication creates marketable wind mill parts.

Fabrication of wind mill parts was treated as manufacture of goods rather than provision of a taxable service because the fabricated items brought into existence excisable goods covered by the applicable exemption notification. As the goods manufactured at the relevant time fell within the exempt category, the activity retained its character as manufacture and could not be reclassified as a service transaction for service tax purposes. Service tax on the fabrication activity was therefore held unsustainable.

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Issues: Whether the fabrication activity undertaken for wind mill parts resulted in manufacture of exempt excisable goods or amounted only to provision of taxable service, and whether service tax could be levied on such activity.

Analysis: The fabricated items were treated as bringing into existence goods that were ordinarily excisable, but for the exemption under Notification No. 12/2012-CX dated 17.03.2012. Since the goods manufactured at the relevant time fell within the exempt category, the activity retained the character of manufacture of goods rather than a taxable service transaction. On that basis, the levy of service tax was held to be unsustainable.

Conclusion: The issue was answered in favour of the assessee, and the fabrication activity was held not liable to service tax.

Ratio Decidendi: Where an activity results in manufacture of goods that are exempt as excisable goods under the applicable exemption notification, the same activity cannot be subjected to service tax as provision of service.

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