By TIOL News Service
NEW DELHI, JAN 01, 2013: THE appellant was undertaking certain jobs within the factory of JCBL Ltd which was manufacturing bus bodies falling under chapter 8707 of the Central Excise Tariff. The work done was - Inspection & Rectification of Buses (including denting & painting work), Shifting of bus structure from inter plant (loading and unloading), Material & Scrap Shifting and supply to Lines & Misc. Work.
Revenue was of the view that the above activities carried out by the appellant amounts to "production or processing of goods for, or on behalf of, the client" as specified in clause (v) of section 65 (19) of Finance Act, 1994 defining "Business Auxiliary Service" and service tax was payable which was not paid. So Revenue issued one Show Cause Notice for demanding tax amount not paid for the period 01-06-05 to 31-12-07 and another for the period Jan 08 to Sep 08. Since the demands of Rs.23,39,109/- and Rs.94,180/- were confirmed along with interest and penalties, the appellant is before the CESTAT.
The appellant submitted that the activities performed by them are incidental and ancillary to manufacture and hence covered by the definition of manufacture in terms of section 2 (f) of Central Excise Act, 1944 and hence outside the purview of service tax under BAS. It is also submitted that section Note 6 of Section XVII of the Central Excise Tariff reads:
"6. In respect of goods covered by this Section, conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article (including 'blank', that is an article, not ready for direct use, having the approximate shape or outline of the finished article or part, and which can only be used, other than in exceptional cases, for completion into a finished article or a part), into complete or finished article shall amount to 'manufacture'."
An alternate argument was that if at all any process is held to be not amounting to manufacture and for that reason chargeable to Service Tax, they are entitled for SSI exemption in terms of notification 8/2005-ST.
Furthermore, as regards the other activities carried out viz. loading and unloading of bus body or metal scrap and shifting such material from one place to another in the same factory, it is submitted that same will not be classifiable under BAS as these activities cannot be considered as production or processing. Moreover, the activity is also not covered by the definition of Cargo Handling services in view of the decisions in Modi Construction Co = (2008-TIOL-1627-CESTAT-KOL) and S. B. Construction Company (2006-TIOL-390-HC-RAJ-ST).
The Revenue representative reiterated the findings of the adjudicating authority and further submitted that the activity of denting, painting and shifting of goods per se did not bring any new goods into existence and hence cannot be considered as a manufacturing activity; only the activity carried out by the appellant should be taken into account. It was also submitted that JCBL was clearing both dutiable motor vehicles and exempted motor vehicles. Inasmuch as since the appellant had not produced evidence to show that all the goods manufactured by JCBL were cleared on payment of excise duty they cannot claim exemption under Notification 08/2005-ST.
The Bench observed -
"11. We have considered arguments on both sides. We propose to firstly examine the processes of denting and painting. These processes are carried out before the bus body was cleared out of the factory. If such processes are carried out on a bus body which is already built and cleared out of a factory there can be a doubt whether the process will amount to manufacture because no new product comes into existence. The factory of JCB Ltd. was manufacturing bus bodies. The processes of denting and painting are essential for completion of manufacture of bus bodies and we do not find any reason to hold that these processes cannot be considered to be manufacturing activities within the meaning of section 2 (f) of Central Excise Act, 1944. Further going by note 6 of section XVII of Central Excise Tariff, these processes per se also are defined to be process of manufacture because these processes are essential for transforming the semi-finished bus body into a complete and finished article. So if the processes done by appellant alone is seen then also the argument of Revenue fails.
12. Now the issue to be examined is whether shifting of goods within the factory premises amounts to "production or processing of goods for, or on behalf of, the client". Obviously the word "production" cannot cover shifting of goods. The word "processing" used in the company of "production" cannot be understood to cover any activity on the goods but only those activities which bring about some change in goods. These words cannot cover activities like shifting, transportation, storage etc within its scope. Shifting of waste arising in the process of manufacturing is one stage further removed from manufacturing activity. So we do not see any merit in the argument of Revenue in this regard.
13. As argued by the appellant this activity did not amount to cargo handling service either because shifting of the goods within the factory premises, when the goods could not be considered to be cargo, could not be considered as "cargo handling". Anyway such a classification is not under dispute in this proceeding.
14. We also note that the claim of the appellant for exemption under notification 08/2005-ST stands denied on very evasive reasoning that the appellant did not produce evidence of duty payment of goods manufactured by JCBL Ltd. The appellant was doing these jobs within the factory of JCBL and JCBL regularly submits excise returns to the excise department which administers service tax levy also. The whole case is made out based on scrutiny of the records of JCBL Ltd as seen from para 2 of the impugned order dated 07-09-09. There is no effort made by the department to identify exempted clearances, if any, of JCBL Ltd and if so its value. Thus there is an approach of selectively looking at the records of JCBL Ltd to book a case of duty evasion against the appellant which is not a fair approach. At least when pointed out by the appellant, there was an onus on the department to re-examine the records, part of which the department relied upon to book the case, especially when such records were easily accessible to the department. So we also hold that the exemption under notification 08/2005-ST has been denied arbitrarily."
In fine, the orders of the lower authority were set aside and the appeals allowed.
(See 2013-TIOL-03-CESTAT-DEL)
