2025 (6) TMI 1813 - AT - Service Tax

Classification of services - Management Maintenance or Repair service (MMRS) or Business Auxiliary Services (BAS) - activity of re-rubberisation of rollers/spindles - HELD THAT - It is found from the cited judgments that the activities being performed by the appellants cannot be covered within the category of MMRS - reliance can be placed in M/S. ZENITH (BANGALORE) ROLLERS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE HYDERABAD-IV 2015 (12) TMI 818 - CESTAT HYDERABAD where it was held that an identical activity of the appellant was classified by the Tribunal as falling under BAS negating Revenue s contention that it should be classified as MMR service. Therefore the demand in itself is not sustainable on this count as the demand has been made under the category of MMRS and not under any other service. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the activity of re-rubberisation of rollers/spindles undertaken by the appellant constitutes a taxable service under the category of 'Management, Maintenance or Repair Service' (MMRS) for the period 01.04.2010 to 31.03.2011;

(b) Whether the appellant's activity is instead classifiable under 'Business Auxiliary Services' (BAS);

(c) Whether the appellant, not being a manufacturer or authorized by a manufacturer, falls within the ambit of MMRS as per the legal definition;

(d) The applicability of relevant precedents and the proper interpretation of Section 65 and Section 65A of the Finance Act, 1994 (pertaining to classification of taxable services);

(e) The entitlement of the appellant to exemption under Notification No. 14/2004-ST if the activity is classified under BAS;

(f) The sustainability of the service tax demand raised by the department under the MMRS category.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Classification of the re-rubberisation activity under MMRS or BAS

Relevant legal framework and precedents:

The Tribunal examined the definitions of MMRS under Section 65(105)(zzr) and BAS under Section 65(105)(zzb) of the Finance Act, 1994. Section 65(64) defines 'repair' to include re-conditioning and restoration. The Tribunal also relied on Section 65A which governs classification when a service prima facie falls under two or more categories, prescribing a hierarchy for classification.

Precedents considered include:

• Neodam Rubber Products Pvt Ltd Vs CCCE & ST, Hyderabad-IV;
• Neotech Products Pvt Ltd Vs CCCE & ST, Hyderabad-IV;
• Zenith (Bangalore) Rollers Pvt Ltd Vs CCE, Hyderabad-IV;
• Zenith Rollers Ltd Vs CCE, Noida;
• Safety Retreading Co. Pvt Ltd Vs CCE (Supreme Court ruling).

Court's interpretation and reasoning:

The Tribunal noted that the appellant receives worn out rollers and undertakes a series of physical processes: removal of old rubber, cleaning, application of bonding solution, and curing. These processes were analyzed as "processing of goods on behalf of the client," which falls within the ambit of Business Auxiliary Services.

However, the Revenue contended that these activities amount to re-conditioning and restoration, which would fall under MMRS. The Tribunal acknowledged that 'repair' as defined includes re-conditioning and restoration, lending some force to the Revenue's argument.

Given the dual classification possibility, the Tribunal applied Section 65A. Since the service could be classified under both BAS (Section 65(105)(zzb)) and MMRS (Section 65(105)(zzr)), the Tribunal observed that clauses (a) and (b) of Section 65A were not applicable because neither category provided a more specific description nor was the service composite. Therefore, clause (c) applied, which directs classification under the sub-clause that occurs first in the statute.

Since BAS precedes MMRS in the statutory list, the Tribunal held that the appellant's activity is classifiable under Business Auxiliary Services.

Key evidence and findings:

The physical processes undertaken by the appellant were carefully itemized and analyzed. The Tribunal found that these processes constituted processing of goods rather than mere maintenance or repair.

Application of law to facts:

The Tribunal applied the statutory classification rules to the facts, concluding that the appellant's activity is best classified as BAS, not MMRS.

Treatment of competing arguments:

The Tribunal gave due consideration to the Revenue's argument that re-conditioning is repair under MMRS but found that the statutory classification hierarchy under Section 65A favored BAS. The appellant's status as neither a manufacturer nor authorized by one further weakened the Revenue's claim under MMRS.

Conclusions:

The Tribunal concluded that the appellant's activity falls under Business Auxiliary Services and not MMRS.

Issue (c): Whether the appellant qualifies under MMRS given they are not a manufacturer or authorized by a manufacturer

Relevant legal framework and precedents:

The MMRS category requires the service provider to be a manufacturer or authorized by the manufacturer to carry out maintenance or repair. This was emphasized in the appellant's submissions and supported by precedents.

Court's interpretation and reasoning:

The Tribunal accepted that the appellant is neither a manufacturer nor authorized by any manufacturer, which excludes them from the MMRS classification.

Application of law to facts:

Since the appellant does not meet the eligibility criteria for MMRS, the demand for service tax under this category is unsustainable.

Conclusions:

The appellant does not fall within the ambit of MMRS due to lack of manufacturer status or authorization.

Issue (d) and (e): Applicability of exemption under Notification No. 14/2004-ST and sustainability of demand

Relevant legal framework:

Notification No. 14/2004-ST exempts certain services classified under Business Auxiliary Services from service tax.

Court's interpretation and reasoning:

Since the appellant's activity is classified under BAS, they are entitled to the exemption under the said notification.

Application of law to facts:

The appellant's service falls within the scope of BAS and thus qualifies for exemption.

Conclusions:

The service tax demand under MMRS is not sustainable, and the appellant is entitled to exemption under BAS.

3. SIGNIFICANT HOLDINGS

The Tribunal's key legal reasoning includes the following verbatim excerpt:

"6. On careful consideration, we find that there is no dispute that the activity undertaken by appellant is re-rubberisation of rollers/spindles for printing industry and received some consideration for such an activity which was sought to be to be taxed under the category of 'maintenance or repair of service'. Identical issue came up before the Tribunal in the case of Zenith Rollers Ltd and in the case of Neotech Products Pvt. Ltd, Revenue wanted to classify this activity under 'business auxiliary services'. The Bench has considered the entire issue in para Nos. 5, 6, 7, 8 & 9 which are reproduced.

'(5). We find that appellants are receiving worn out rubber rollers from various customers. On receipt of these worn out rollers, they undertake following activity.

(i) removing of old rubbers from spindle

(ii) cleaning of spindle

(iii) Apply rubber bonding solution on spindle

(iv) Curing

6. We find these activities at various stages are nothing but various processes undertaken by them on goods received by them. We therefore find force in contention of the appellants that these activities are covered under Clause V of the Business Auxiliary Services as these are processing of goods on behalf of the client. We therefore hold these activities can be classified under Business Auxiliary Service.

7. Contention of Revenue is that re-rubberisation of rollers undertaken by the appellants amounts re-conditioning of used rollers in specified manner and is classifiable under Management, Maintenance or Repair Service. Under Section 65(64) repair includes re-conditioning, restoration or receiving of goods or equipment. In Chamber Dictionary re-conditioning means 'to repair and refit to restore to original or sound condition' and this argument of Revenue has also substantial force for classifying the activity under management, maintenance or repair service.

8. We note that when a service is classifiable under two categories, Section 65A is attracted which reads as under:

'65A(1) For the purposes of this Chapter, classification of taxable services shall be determined according to the terms of the subclauses of clause (105) of section 65.

(2) When for any reason, a taxable service, is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows :-

(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;

(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which given them their essential character, insofar as this criterion is applicable;

(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clause which equal merit consideration.'

9. We find that activities of the appellants are equally classifiable under two services namely Business Auxiliary Service and Maintenance or Repair service. Since the service cannot be classified under clause 'a' and 'b' of Section 65A, clause 'c' of Section 65A is attracted according to which service is classifiable under the sub-clause of Clause (105) of Section 65 which comes first. We find that Business Auxiliary service is covered under Section 65(105)(zzb) and Management, Maintenance or Repair Service is covered under Clause 65(105)(zzr). Since Business Auxiliary Service comes first under Clause 65(105)(zzb), we hold that service is classifiable under Business Auxiliary Service. We set aside the Order-in-Original and allow the appeal.'"

Core principles established include:

• Where a service is classifiable under two categories, the classification must follow the hierarchy prescribed under Section 65A of the Finance Act;
• Re-rubberisation involving physical processing of goods on behalf of clients is a Business Auxiliary Service rather than MMRS;
• Only manufacturers or persons authorized by manufacturers can be classified under MMRS for such activities;
• Classification under BAS entitles the service provider to exemption under Notification No. 14/2004-ST;
• Service tax demand under MMRS on such activity is unsustainable if classification is otherwise.

Final determinations:

The Tribunal allowed the appeal, held that the appellant's activity is classifiable under Business Auxiliary Services and not under Management, Maintenance or Repair Service, and accordingly, the service tax demand under MMRS was quashed.