Manufacture deeming fiction and job-work exemptions bar service tax on pickling and oiling of hot rolled coils.

Job work of pickling and oiling hot rolled coils for principal manufacturers was treated as non-taxable where the processed goods were made from client-supplied inputs and returned for use in manufacturing dutiable final products, bringing the activity within the relevant service tax exemptions under Notification No. 8/2005-Service Tax and the Mega Exemption under Notification No. 25/2012-S.T. The process was also covered by Chapter Note 6 to Chapter 72 of the Central Excise Tariff Act, 1985, which deems pickling and oiling of goods under heading 7208 to be manufacture. On that basis, the same activity could not be subjected to service tax as a service, and the demand, interest, and penalties were not sustainable.

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Issues: Whether the job work of pickling and oiling of hot rolled coils for principal manufacturers was taxable as business auxiliary service or as "service" under the Finance Act, 1994, and whether the activity was exempt or excluded from service tax by the relevant notifications and the deeming provision treating the process as manufacture.

Analysis: The activity of production or processing of goods for a client fell within the definition of business auxiliary service and, after 01.07.2012, within the expanded definition of service. However, the exemption under Notification No. 8/2005-Service Tax dated 01.03.2005 applied where the processed goods were made from client-supplied inputs and returned for use in manufacture of excisable goods on which duty was payable. The record showed compliance with these conditions, as the processed intermediate goods were returned to the principal manufacturers and used in the manufacture of final products on which excise duty was discharged. For the period after 20.06.2012, the Mega Exemption under Notification No. 25/2012-S.T. continued the exemption for such job work. Independently, Chapter Note 6 to Chapter 72 of the Central Excise Tariff Act, 1985 treated pickling and oiling of goods falling under heading 7208 as manufacture by legal fiction, so the same activity could not be subjected to service tax as a service.

Conclusion: The job work activity was not liable to service tax, both because the exemption conditions were satisfied and because the process was treated as manufacture for excise purposes.

Final Conclusion: The demand, interest, and penalties could not be sustained, and the assessee was entitled to relief.

Ratio Decidendi: Where a job-work process is treated as manufacture by statute, or otherwise falls within a specific exemption for processing of client-supplied goods returned for use in dutiable manufacture, service tax cannot be levied on the same activity.

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