Job work treated as manufacture excludes service tax, and reimbursable expenses and penalties also fell with the demand.

A genuine job work arrangement that amounted to manufacture of excisable goods was outside service tax under Renting of Immovable Property Services or Business Auxiliary Service, because the true nature of the transaction governed levy and not the billing form. Reimbursable amounts for power, fuel, water, maintenance and similar expenses were treated as linked to the manufacturing arrangement and were not includible in taxable value as service consideration. Once the demand failed on merits, invocation of the extended period and imposition of penalties also could not survive. The impugned demand was therefore set aside in full, with complete relief from service tax, interest and penalties.

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Issues: (i) Whether the activity undertaken under the job work arrangement amounted to manufacture and was therefore outside the levy of service tax under Renting of Immovable Property Services or Business Auxiliary Service; (ii) Whether reimbursable expenses paid by the principal could be included in the taxable value; (iii) Whether extended period and penalties were sustainable.

Issue (i): Whether the activity undertaken under the job work arrangement amounted to manufacture and was therefore outside the levy of service tax under Renting of Immovable Property Services or Business Auxiliary Service.

Analysis: The arrangement was found to be a genuine conversion and manufacturing arrangement for production of excisable goods on behalf of the principal, with the appellant retaining the factory, manpower, and manufacturing role. The nature of the transaction, not the form of billing or accounting, was held to be determinative. Since the activity amounted to manufacture within the meaning of the excise law, it stood excluded from the taxable service entry covering production or processing of goods for or on behalf of a client, and it could not be recast as renting of factory premises merely because conversion charges and reimbursements were involved.

Conclusion: The activity was manufacture and not taxable as renting of immovable property services or business auxiliary service.

Issue (ii): Whether reimbursable expenses paid by the principal could be included in the taxable value.

Analysis: The amounts paid towards power, fuel, water, maintenance, and similar expenses were held to be reimbursements linked to the manufacturing arrangement. Such reimbursements could not, by themselves, alter the character of the transaction into rent or form part of the taxable value as service consideration.

Conclusion: Reimbursable expenses were not liable to service tax.

Issue (iii): Whether extended period and penalties were sustainable.

Analysis: Since the demand itself failed on merits, the basis for invoking the extended period did not survive. Penalties also could not be sustained once the tax demand was held unsustainable.

Conclusion: Extended period and penalties were not sustainable.

Final Conclusion: The impugned demand was set aside in full, and the assessee obtained complete relief from service tax, interest, and penalties.

Ratio Decidendi: A genuine job work arrangement amounting to manufacture cannot be reclassified as a taxable service merely because consideration includes fixed charges or reimbursements; the true nature of the transaction governs levy.

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