By TIOL News Service

MUMBAI, OCT 28, 2014: THE appellant is engaged in providing packaging activity services in relation to fertilizers manufactured by M/s Zuari Industries Ltd., Goa for which they are receiving certain consideration.

Revenue is of the view that the said services are liable for Service Tax under the category of “packaging services” defined in section 65(76b) of the FA, 1994 and which reads -

[(76b)  "packaging activity" means packaging of goods including pouch filling, bottling, labelling or imprinting of the package, but does not include any packaging activity that amounts to 'manufacture' within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944);]

Accordingly, SCN was issued demanding service tax for the period 16/06/2005 to 31/03/2010 and the same was confirmed by the CST, Panaji-Goa with interest and penalty. The demand is a whopping Rs.3,20,47,239/-.

In the matter of the Stay application filed before the CESTAT, while granting unconditional waiver of pre-deposit and ordering a stay from recovery, the Bench observed -

"5.1 From the Fertiliser (Control) Order, 1985, it is clear that the fertilizer cannot be marketed without packaging, in the manner specified under the said order and thus packaging of fertilizer is a statutory requirement. If that be so, marketing of fertilizer cannot be take place without packaging. Under Section 2(f)(i) of the Central Excise Act, 1944, "manufacture" includes any process incidental or ancillary to the completion of a manufactured product. Thus the completion of fertilizer as a manufactured product would be over only when the packaging is completed. Without packaging, fertilizer cannot be marketed. Therefore, there is merit in the contention of the appellant that the activity of packaging undertaken in respect of fertilizer would form an integral part of the manufacturing activity and cannot be viewed as a service activity, especially in the context of the packaging activity as defined in Section 65 (76b) which excludes form its scope any activity of manufacture as defined in Section 2 (f) of the Central Excise Act, 1944. Thus, the appellant has made out a strong case in their favour against pre-deposit of the dues adjudged."

We reported this as 2013-TIOL-975-CESTAT-MUM.

The appeal was heard recently.

Whereas the appellant made submissions as during the time of hearing the stay application and added that M/s Zuari Industries Ltd. have discharged the Central Excise duty by adding the packaging charges in their assessable value, the AR too stuck to his stand - that manufacture of fertilizer is complete even before it is packed and even after packaging, fertilizer remains fertilizer and, therefore, process of packaging undertaken does not come under the definition of section 2(f) of the CEA, 1944 as the process undertaken by the appellant is not a process incidental or ancillary to complete the manufactured product as the fertilizer is already completed; that for bulk sale of fertilizer, no packaging is required.

The Bench held -

"5. As per Essential Commodity Act 1955, read with Fertilizer Control Act Order 1985, we find that it is cleared that fertilizer cannot be marketed without packaging in the manner specified under the said order, thus packaging of fertilizer is a statutory requirement for sale of the fertilizer. We further find that sale of fertilizer in bulk requires a license to sell in bulk. As the appellant is not having any such license, therefore, packaging is a statutory requirement for sale of fertilizer by M/s Zuari Industries Ltd. If marketing of fertilizer cannot take place without packaging, the appellant is a manufacturer as per section 2(f)(i) of the Central Excise Act, 1944, wherein manufacture includes any process incidental or ancillary to the completion of a manufactured final product. In other terms, the completion of fertilizer manufacture product occurs when packaging is done and without packaging, the fertilizer cannot be marketed. Therefore, we do agree with the contention of the ld. Counsel for the appellant that activity of packaging undertaken by them in respect of fertilizer would form an integral part of manufacturing activity and cannot be said to be a service activity, especially, in the context of packaging activity as defined in section 65(76b) which excludes from its scope, any activity of manufacture as defined in section 2(f) of the Central Excise Act, 1944. Therefore, we hold that appellant being a manufacturer is doing the packaging activity and does not fall under packaging activity defined in section 65(76b) of the Finance Act, 1994."

In fine, the order confirming the service tax demand of more than Rs.3.20 crores and imposing equivalent penalty and interest was set aside and the appeal was allowed with consequential relief.

In passing : Hopefully, this is the end of the story…

(See 2014-TIOL-2107-CESTAT-MUM)