2026 (2) TMI 1339 - AT - Service Tax

Manufacture vs Service: treating job work as manufacture prevents Cenvat demands framed as exempted services.

The article examines whether job-work processes constitute manufacture under Notification No. 214/86-CE and thus cannot be simultaneously treated as an ... Processes undertaken in job work - Manufacture v. service - common input services - exempted service - options under Rule 6(3) of the Cenvat Credit Rules - estoppel from acceptance of excise returns / consistency of revenue stance - benefit of exemption notification - HELD THAT:- The submission of the appellant is that the proceedings initiated by the earlier show cause notice dated 18.06.2018 for the previous period culminated in the Final Order No.50625/2022 dated 19.07.2022 passed by the Hon’ble Tribunal in favour of the appellant following the judgement of the Hon’ble High Court of Andhra Pradesh and Telangana in the case of Tiara Advertising [2019 (10) TMI 27 - TELANGANA AND ANDHRA PRADESH HIGH COURT] The Tribunal upheld the contention of the appellant that it was not rendering any service but was manufacturing goods on job work basis for the principal and has been availing the benefit of Central Excise Notification No.214/86–CE dated March 25, 1986 and since the activity amounts to manufacture, it cannot also simultaneously become a service. Following the decision of the Tribunal in the appellant’s own case, we set aside the impugned order. The appeal is, accordingly allowed. Issues: Whether processes undertaken in job work amount to manufacture (not a service) and consequently whether the demand for payment under the Cenvat Credit Rules for common input services used for exempted services (job work) is sustainable.Analysis: The matter examines whether the activity in question is manufacturing as covered by Notification No. 214/86-CE dated 25.03.1986, and whether, if treated as manufacture, it can simultaneously qualify as an exempted service under clause (f) of Section 66D of the Finance Act, 1994 and the Cenvat Credit Rules, 2004. The legal framework includes Rule 6(2) and Rule 6(3) of the Cenvat Credit Rules, 2004 which prescribe maintenance of separate accounts and provide alternative options for providers of both taxable and exempted services; Rule 6(3) is an option available to the provider and cannot be forced upon the provider by the Revenue. The decision in an earlier connected proceeding held that where the processes constitute manufacture and the assessee claimed exemption under Notification No. 214/86-CE, the Revenue cannot concurrently treat the same processes as rendering an exempted service and demand payment under the Cenvat scheme. Applying those principles, the prior tribunal finding that the activity is manufacture and not a service displaces the foundation for demanding payment under the Cenvat Credit Rules for exempted services and for imposing consequential penalties and interest under the provisions invoked.Conclusion: The demand under the Cenvat Credit Rules for payment in respect of alleged exempted job work services is not sustainable; the appellate order confirming the demand is set aside and the appeal is allowed in favour of the assessee.