For the purpose of "Business Auxiliary Service" the definition of section 65(19)(v) of Finance Act, 1994 (Service Tax) provides that an activity of "production or processing of goods for, or on behalf of, the client" is a taxable activity. However an activity which is amounting to manufacture within the meaning of section 2(f) of Central Excise Act, 1944 is excluded from the scope of service tax under "Business Auxiliary Service"

There is a wide confusion over applicability and taxability of job working activity because, there is wide gap in different interpretation of provisions of the provisions of service tax relating to Job working activity under Business Auxiliary Service.

It happens in generally that a principle who buys excise duty paid material (goods) and send the same to job worker for further processing. Many times the activity undertaken by the job worker is not amounting to manufacture.

In the present case the job worker was engaged in the following FBE Coating activities:

        The process of FBE coating undertaken by the appellant is as under:

         (a) Duty paid bars received from the customers, are cleaned in Short Blasting Machine using steel shot of abrasives.

         (b) Bars are heated to around 220 to 240 C in induction heater.

         (c) Epoxy powder is sprayed over the heated bars by Electrostatic Spray guns housed inside the Coating Booth.

         (d) Epoxy powder on contact with hot bars melts and fuses with the shot blasted heated bar surface making a strong corrosion protection bond with bars.

         (e) Bars are then cooled in a free flowing water quench tunnel.

         (f) Thereafter Coated Bars are inspected to check quality of Coating and then dispatched back to the respective customers.

        The FBE coated bars are returned to their customers and used in civil construction job like construction of dams, bridges, canals, channels, pipelines etc. The said coating is essentially carried out on the bars for the purpose of protecting them from corrosion.

After hearing the arguments and analyzing the provisions in details with reference to amendments made in the provisions with effect from June 2005, honorable CESTAT held that:

"…..In the present case, the appellant is a company having expertise in the FBE coating and are professional in the fields. Their services are being used by the main contractors in furtherance of providing their service to the State Road Development Corporation Ltd. As such, the said main contractors instead of themselves doing the job of epoxy coating are getting the same done from the appellants by utilizing their services.

….Having discussed the various issues in the preceding paragraphs, we hold that the appellants are liable to pay service tax in respect of the activity undertaken by them during the relevant period."

However, having the facts of the case, CESTAT gave the following reliefs to the appellant:

1              Benefit of Cenvat credit as per Cenvat Credit Rules, 2004 allowed on inputs and input services.

2              Penalty is waived by invoking the provisions of section 80

 

For full text of judgment - visit 2008 -TMI - 31593 - CESTAT AHMEDABAD

Service tax on job work: specialized epoxy FBE coating treated as taxable under business auxiliary service, with cenvat implications. Whether FBE epoxy coating by a job worker on duty-paid steel bars is a taxable activity under Business Auxiliary Service hinges on whether the processes constitute manufacture; where the coating does not amount to manufacture, the professional, specialized coating service performed for clients falls within the taxable scope. The tribunal treated the coating activity as taxable under Business Auxiliary Service, recognised Cenvat credit on inputs and input services under Cenvat Credit Rules, 2004, and addressed penalty mitigation.