By TIOL News Service

NEW DELHI, JUNE 03, 2014: THIS is a Revenue appeal.

The respondent in their factory at Moga, Punjab manufacture Nescafe prepared mix, Nestle three-in-one, Iced Tea, Tea pre-mix, growing up milk powder, taste makers, inter-mixture of vitamins etc. chargeable to Central Excise duty.

The aforesaid items are also manufactured by the respondent in their factories located in other parts of India. Some of these products are also got manufactured by them through their job workers in India.

These products are also manufactured by their sister concerns located outside India viz. M/s Nestle Bangladesh, M/s Nestle Indonesia, M/s Nestle Lanka Ltd . etc. The respondent in their factory at Moga , Punjab have a fully equipped Central Quality Assurance Laboratory (CQAL) in which they not only test the goods manufactured at Moga factory but also test the samples received from their job workers, their other units located in India and the samples received from their sister concerns abroad.

For testing the samples received from M/s Nestle Bangladesh, M/s Nestle Indonesia, M/s Nestle Lanka Ltd. , they received payment in convertible foreign exchange.

The services of testing for quality control purposes is taxable under Section 65 (105) (zzh) of the Finance Act, 1994 as ‘technical testing and analysis service'. The Department was of the view that the amount charged by the respondent for testing of the samples received from job workers and from sister concerns abroad would attract service tax.

The period of dispute in this case is from 01/07/03 to 30/09/07.

Whereas the original authority confirmed the Service Tax demands, the Commissioner (Appeals) set aside the same by holding thus-

++ Testing of the samples received from respondent's sister concerns abroad would not attract service tax during period till 14/03/05 in terms of exemption Notification No. 21/2003-ST dated 20th November 2003.

++ In respect of the period from 15/03/05, testing service provided by the respondent to their sister concern abroad would not attract service tax as the service provided by the respondent amounts to export of service in terms of Rule 3 (1) readwith Rule 3 (2) of the Export of Service Rules, 2005.

++ With regard to the testing of the samples received from the job workers manufacturing the respondents products, the respondent have not provided service to anybody as they have tested their own goods in their own laboratory and had not received any payments from their job workers.

As mentioned, Revenue is in appeal before the CESTAT.

The Revenue representative made the following submissions -

++ the services provided from 15/03/2005 would be treated as export only if it has been performed outside India, while the service, in question, has been performed in India.

++ With regard to the testing of the samples received from the job workers since cost of the said tests was being put into the account of the said job workers, therefore, service tax would be chargeable on the cost of these tests.

The respondent countered the Revenue submissions by stating that while testing had been done in India, the test reports had been delivered outside India and, therefore, these services have to be treated as performed outside India and since payment for the services had been received in convertible foreign exchange, the services have to be treated as export of service. Reliance is placed on the decision in B.A. Research India Ltd. 2009-TIOL-1981-CESTAT-AHM . On the second point made by the AR, it is submitted that since no payment had been made by the job workers and the respondent have tested their own goods being manufactured by the job workers, no service has been provided by the respondent and no service tax would be chargeable.

The Bench observed that for the period prior to 14/03/2005 no Service Tax would be chargeable in view of the exemption notification 21/2003-ST correctly claimed by the respondent; post 14/03/2005, the services rendered are to be treated as Export of Services in view of the Tribunal decision in B. A. Research India cited supra . As for payment of Service Tax on the testing services provided to the respondent's job workers, the CESTAT noted that there was nothing on record to show that the respondent had charged any amount for testing the samples received from the job workers and the hence the submission made by the AR was not substantiated. Also in the ground of appeal there is no mention of any amount being charged by the respondent from the job workers. The Bench agreed with the finding of the Commissioner(A) that the respondent had not provided any service to the job workers and hence no service tax would be chargeable.

Holding that the order of the Commissioner (A) does not suffer from any illegality or impropriety, the appeals filed by the Revenue were dismissed.

In passing : Samples received for testing from other units located in India- ST liability test report…positive, negative...

(See 2014-TIOL-930-CESTAT-DEL)