2021 (8) TMI 801 - AT - Service Tax

Commercial or industrial construction service - services rendered to Government bodies and other entities - benefit of exemption has been denied for the reason that the services have been rendered in the factory area - Scope of Factory - ETPs constructed for ONGC - STPs Constructed for NBCC - Order is beyond the show cause notice or not - HELD THAT - The contention regarding scope of SCN would be examined if considered necessary after the second and the third submissions relating to ETPs constructed for ONGC and STPs constructed for NBCC are decided because in case these two matters are decided in favour of the appellant it may not be necessary to examine whether the order went beyond the show cause notice. ETPs constructed for ONGC - HELD THAT - A factory is a premise where excisable goods are either manufactured or a process in relation to their manufacturing is undertaken . Extraction of crude oil would not qualify as manufacture as the activity involving extraction of natural resources would qualify as production which is independent and different from manufacture - Undertaking of an activity which results in emergence of a new commodity may amount to manufacture such as in the case of manufacturing of medicines or cosmetics or textile. However extracting of natural resources including crude oil would amount to production and not manufacture . In COMMISSIONER OF INCOME-TAX VERSUS SINGARENI COLLIERIES COMPANY LIMITED 1995 (11) TMI 36 - ANDHRA PRADESH HIGH COURT the Andhra Pradesh High Court examined whether winning or excavation of coal from the mines amounted to production or manufacture. The High Court after placing reliance on the decision of the Supreme Court in N.C. Budharaja held that the mining or excavation of coal would qualify as production - In COMMISSIONER OF INCOME-TAX VERSUS SESA GOA LTD. 2004 (11) TMI 14 - SUPREME COURT the Supreme Court held that extraction of iron ore would amount to production . However the Supreme Court had not addressed the question as to whether extraction of iron ore would amount to manufacture . It has to be determined whether a premise where only production takes place would qualify as a factory. A factory would include a premise where excisable goods are manufactured or where a manufacturing process in connection with production of goods is carried out. Thus when the activity in relation to extraction of natural resources does not amount to manufacture the first part of the definition of factory would not be applicable. The scope of the second part which includes a manufacturing process in connection with production of goods caters to post-production processes which are in relation to manufacture . This would include activities such as washing of coal; or withering of tea leaves; or refining of crude oil. This would be a manufacturing process which is in connection with production. The definition of factory caters to manufacturing processes in respect of both manufactured and non-manufactured goods . In case of manufactured goods the premise where the manufacturing activity is undertaken would qualify as a factory. In case of non-manufactured goods such as natural resources the premises where the post-production processes take place towards making the produce commercially viable would qualify as a factory - the oil fields of ONGC where only extraction of crude oil takes places would not qualify as a factory . The Commissioner committed an error in denying the benefit under Serial No. 13(d) of the Notification dated 20.06.2012. STPs Constructed for NBCC - HELD THAT - The STP is set up for the purpose of removing pollutants and contaminants from wastewater primarily from household sewage. It includes various processes so as to obtain clean and environment safe treated waste water. Hence STP may be understood as a Wastewater Treatment Plant - the effluent means any waste material which is discharged into the environment (lake or river) including sewage. A treatment plant for management of effluent would therefore also include a sewage treatment plant. The Commissioner failed to appreciate the purpose of both the treatment processes. The exemption benefit provided by Notification dated 20.06.2012 at Serial No. 13(d) would therefore be available to the appellant. The Commissioner committed an illegality in denying the benefit of the Notification dated 20.06.2012 at Serial No. 13(d) to the appellant for ETPs constructed for ONGC and the STPs constructed for NBCC - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the order was beyond the show cause notice.
2. Whether the ETPs constructed for ONGC qualify for exemption under Serial No. 13(d) of Notification No. 25/2012-ST.
3. Whether the STPs constructed for NBCC qualify for exemption under Serial No. 13(d) of Notification No. 25/2012-ST.

Issue-wise Detailed Analysis:

A. Order is beyond the show cause notice
The appellant contended that the order confirmed the demand on grounds different from those in the show cause notice, which initially alleged the appellant was rendering commercial construction services. The order instead confirmed the demand on the basis that the ETPs were located in a factory and the STP did not qualify as an effluent treatment plant. The appellant relied on precedents such as Reckitt & Coleman of India Ltd. vs. CCE and Toyo Engineering India Limited vs. CC, Mumbai to support their argument that an order cannot exceed the scope of the show cause notice. The tribunal decided to examine this issue only if required after addressing the other issues.

B. ETPs constructed for ONGC
The demand for ETPs constructed for ONGC was confirmed because the Commissioner considered the oil fields of ONGC as a factory, thus denying the exemption under Serial No. 13(d) of Notification No. 25/2012-ST. The tribunal examined whether the oil fields, registered under the Mines Act, qualify as a factory. The term 'factory' was not defined in the Notification or the Finance Act, so reference was made to the Central Excise Act, 1944, which defines a factory as premises where excisable goods are manufactured or where a manufacturing process connected with production is carried out. The tribunal concluded that extraction of crude oil amounts to 'production' and not 'manufacture,' and thus, the oil fields do not qualify as a factory. The Commissioner erred in denying the exemption under Serial No. 13(d) of the Notification.

C. STPs constructed for NBCC
The exemption for STPs constructed for NBCC was denied on the grounds that the exemption is available only for pollution control plants and ETPs, and STPs do not qualify as such. The tribunal noted that STPs are set up to remove pollutants and contaminants from wastewater, including household sewage, and thus can be understood as Wastewater Treatment Plants. The tribunal referred to various dictionary definitions to establish that 'effluent' includes sewage, and therefore, a treatment plant for effluent management would include a sewage treatment plant. The Commissioner failed to appreciate the purpose of both treatment processes, and the exemption benefit under Serial No. 13(d) of the Notification should be available to the appellant.

Conclusion:
The tribunal ruled that the Commissioner committed an error in denying the benefit of the Notification dated 20.06.2012 at Serial No. 13(d) for both the ETPs constructed for ONGC and the STPs constructed for NBCC. Consequently, the impugned order dated 27.10.2015 was set aside, and the appeal was allowed. The tribunal did not find it necessary to address the issue of the order being beyond the show cause notice due to the favorable decision on the other issues.