ST - Interpretation of Revenue that there is no manufacture involved as defined u/s 2(f) and, therefore, ST is payable under BAS is totally incorrect inasmuch as medicines containing alcohol are 'manufactured' by appellants as per provisions of Drugs and Cosmetics Act: CESTAT
By TIOL News Service
MUMBAI, JULY 24, 2015: THE appellant, a manufacturer of pharmaceutical products, entered into an agreement with M/s. Bayers Pharmaceuticals Private Ltd., Mumbai for manufacture of the product called "Bayer Tonic II" on job work basis.
The product "Bayer Tonic II" is an alcoholic preparation which is not covered under the CETA 1985.
It is the allegation of the department that since “Bayer Tonic II” is non-excisable product, the activity does not amount to manufacture u/s 2(f) of the CEA, 1944; that on the above facts, a SCN dated 6.7.2007 was issued informing the appellant that the service rendered by him falls under BAS and accordingly, for the consideration of Rs. 41,97,892/- received during the period from 31.7.2006 to 30.3.2007, the appellant is liable to pay the service tax under BAS and accordingly, the appellant was directed to show cause as to why the service tax of Rs. 5,13,822/- should not be demanded.
The lower authorities confirmed the ST demand and imposed penalties.
The appellant submitted that the medicines manufactured by the appellants undoubtedly arise out of manufacturing process; that since the definition of BAS excludes any activity that amounts to manufacture as per provision of section 2(f) of CEA, 1944, it does not mean that medicines containing alcohol are not manufactured items. It is also submitted that the issue is now squarely settled by the judgment of Tribunal in the case of Rubicon Formulations Pvt. Ltd. - 2010-TIOL-41-CESTAT-MUM and Midas Care Pharmaceuticals . It is further informed that the first appellate authority in subsequent matters of the appellant has followed the law settled by the Tribunal and given them relief.
The AR had nothing to add.
The Bench observed -
"8. It is noticed from the records that both the lower authorities have categorically held that the appellant is undertaking manufacturing of medicines containing alcohol as a job worker form the raw materials received from the principal. It is a case of the revenue that the exemption granted from payment of service tax under business auxiliary services can be claimed only if the assessee is manufacturing excisable goods. The interpretation given by the lower authorities is totally incorrect for more than one reason. Firstly, the basic thrust of the revenue that the activity of manufacturing is not there, is in itself on wrong footing inasmuch that the medicines manufactured by the appellants are as per the provisions of Drugs and Cosmetic Act and the Rules made thereunder; if that be so it cannot be held that there was no manufacture of excisable goods. Secondly, the products manufactured by the appellant are chargeable to Excise duty which can be levied by the state as per list to the 7 th schedule under article 246 of the constitution of India; entry is listed is at serial number 50 of list 2. Thirdly, the issue is now squarely settled by the decision of the Tribunal in the case of Rubicon formulations (supra) and Midas care Pharmaceuticals (supra). We also find that the first appellate authority has, in subsequent proceedings of the very same appellant, has allowed the appeals and we were informed that the revenue has not challenged the said decisions ."
Holding that the order confirming the ST demand under BAS is not sustainable, the same was set aside and the appeal was allowed.
(See 2015-TIOL-1521-CESTAT-MUM)
