By TIOL News Service

MUMBAI, JUNE 28, 2013: THE appellants are engaged in providing packaging activity services in relation to fertilizer manufactured by M/s. Zuari Industries Ltd., Goa, for which they received consideration.

The department was of the view that the activity undertaken by the appellant would come within the purview of "packaging services" as defined in Section 65 (76b) of the Finance Act, 1994 and, therefore, the appellant was issued a SCN demanding service tax of Rs.3,20,47,239/- for the period 16/06/2005 to 31/03/2010.

Such a large amount of demand met with confirmation at the hands of the CCE, Goa along with interest and penalty.

So, the agency is before the CESTAT with a Stay application & appeal.

Following are the submissions made -

++ the Fertiliser Control Order, 1985 (FCO) governs the transaction relating to manufacture, sale and distribution of fertilizers and as per clause 19 of the said Order, there are restrictions on manufacture, sale and distribution of the fertilizers which read as follows. "No person shall himself or by any other person on his behalf sell, offer for sale, stock or exhibit for sale or distribute (i) any fertilizer the container whereof is not packed and marked in the manner laid down in this order; (ii) any fertilizer the label or container where bears the name of any individual firm or company purporting to be manufacturer of the fertilizer, which individual, firm or company is fictitious or does not exist". Further as per Clause 21, the requirement with regard to the packing and marketing are enumerated apart from the weight and size of the package. Thus, the packing of fertilizer is a statutory activity under the Fertilizer Control Order, without which the fertilizer cannot be marketed.

++ Section 2(f) of the CEA, 1944 defines "manufacture" to include any process, incidental or ancillary to the completion of a manufactured product. The manufacture of fertilizer is complete only when the packaging is done. The definition of packaging activity in 65(76b) of the Finance Act, 1994, therefore, excludes packaging of fertilizer since the said section excludes any activity which amounts to manufacture under Section 2(f) of the CEA, 1944.

+ Reliance is placed on the following decisions to substantiate their contention viz. Afco Industrial & Chemicals Ltd. 1987 (32) ELT 220 (Tribunal); Flex Engineering Ltd., Vs. CCE, UP, - (2012-TIOL-01-SC-CX) & Prem Conductor - (2007-TIOL-2258-CESTAT-MUM)

The Revenue representative submitted that the manufacture of fertilizer is complete even before they are packed and even after packaging, fertilizer remains fertilizer and therefore, the process of the packaging undertaken in the instant case will not come within the purview of "manufacture" as defined in Section 2(f) of the CEA, 1944.

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."

In fine, the Bench granted unconditional waiver from pre-deposit of dues adjudged and stayed recovery.

In passing: Fertile minds…fertile imagination…fertile ideas…growth…

(See 2013-TIOL-975-CESTAT-MUM)