2025 (7) TMI 3 - AT - Service Tax

Recovery of service tax - Business Auxiliary Services (BAS) - appellants received the HR coil from the principal manufacturers for the purpose of pickling and oiling - period of dispute involved in the present appeal is from 2007- 2008 to 2014-2015 - HELD THAT - On reading of the definition of BAS it transpires that in sub-clause (v) the activities of production or processing of goods for the client is considered as a taxable service leviable to service tax thereon. Thus the activities carried out by the appellants as a job worker for the principal manufacturer(s) for the period from 2007-2008 to 30.06.2012 should be termed as provision of service under the category of BAS. However in context with the sub-clause (v) in the definition of BAS in exercise of the powers conferred under sub-section (1) of Section 93 of the Act of 1994 the Central Government has issued the Notification No. 8/2005-Service Tax dated 01.03.2005 as amended by exempting the taxable services of production or processing of goods for or on behalf of the client from the whole of service tax leviable thereon under Section 66 of the said Act. Availment of exemption provided under the said notification is subject to the condition that the goods must be produced or processed by using raw materials or semi-finished goods supplied by the client(s); and the goods so produced or processed are returned back to the said client for use in or in relation to manufacture of any goods falling under the First Schedule to the Central Excise Tariff Act 1985 (CETA) on which appropriate duty of excise is payable. In paragraph 30(c) in the said N/N. 25/2012-S.T. dated 20.06.2012 exemption was provided for carrying out the activities of job-work subject to the condition that appropriate duty would be payable by the principal manufacturer which admittedly have been complied with as certified in the certificates issued by the principal manufacturers. Therefore in terms of the notification dated 01.03.2005 as amended and subsequent notification dated 20.06.2012 the appellants should not be liable for payment of service tax during the entire period from April 2007 to March 2015 in respect of the production/ processing activities carried out by them from the raw materials supplied by the principal manufacturers. Even otherwise also in relation to the job work in dispute carried out by the appellants for the period post March 2012 were not liable to payment of service tax by virtue of Chapter Note 6 to Chapter 72 of the Central Excise Tariff Act 1985 (inserted by clause 141 of the Finance Bill 2012 effective from midnight 16.03.2012) which provides that the process of pickling and oiling undertaken in respect of the goods falling under Chapter 7208 would by a legal fiction be a process amounting to manufacture. As per the said deeming fiction it is manifestly clear that the activity of job work in respect of the goods of Chapter 7208 is considered as a manufacturing activity attracting payment of central excise duty. Since the legislative mandate is to consider the process of pickling/oiling of the goods under such chapter is manufacture then the said activities cannot be considered as service for the purpose of payment of service tax thereon as that would amount to double taxation for which there is no sanction under the law. There are no merits in the impugned order wherein the adjudged demands were confirmed on the appellants. Therefore the impugned order is set aside and the appeal is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the activity of job work involving pickling and oiling of Hot Rolled (HR) coils carried out by the appellants for principal manufacturers amounts to 'manufacture' under the Central Excise Tariff Act, 1985, or constitutes a taxable service under the category of Business Auxiliary Services (BAS) or as a 'service' under the Finance Act, 1994.

(b) Whether the appellants were liable to pay service tax on such job work activities during the disputed period, specifically from 2007-2008 to 2014-2015, considering the relevant notifications and exemptions issued by the Central Government.

(c) Whether the exemption notifications No. 8/2005-Service Tax dated 01.03.2005 and No. 25/2012-Service Tax dated 20.06.2012 apply to the appellants' job work activities, thereby relieving them from service tax liability.

(d) Whether the legislative amendment by insertion of Note 6 to Chapter 72 of the Central Excise Tariff Act, 1985 (effective from 16.03.2012) treating pickling and oiling as a process amounting to manufacture, excludes such job work from the ambit of service tax liability.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Nature of Job Work Activity - Manufacture or Service

Relevant legal framework and precedents: The appellants contend that the job work of pickling and oiling HR coils amounts to 'manufacture' as per Note 6 to Chapter 72 of the Central Excise Tariff Act, 1985, which deems such processes to be manufacturing activities. The Revenue relies on Circular No. 927/17/2010-CX dated 24.06.2010, asserting that pickling and oiling are preparatory processes and do not constitute manufacture under the Central Excise statute.

Court's interpretation and reasoning: The Tribunal examined the legislative amendment inserted by clause 141 of the Finance Bill, 2012, which introduced Note 6 to Chapter 72. This note creates a legal fiction that pickling and oiling of goods under Chapter 7208 amount to manufacture. The Tribunal emphasized that this deeming fiction is a legislative mandate, and as such, the process undertaken by the appellants qualifies as manufacture.

Key evidence and findings: The appellants were engaged in pickling and oiling processes on HR coils falling under Chapter 7208. The activity was carried out on raw materials supplied by principal manufacturers, who subsequently paid Central Excise duty on the finished goods.

Application of law to facts: Since the process is legislatively deemed to be manufacture, the activity cannot be regarded as a 'service' for the purpose of service tax, as that would amount to double taxation.

Treatment of competing arguments: The Revenue's reliance on the Circular to argue that pickling and oiling are not manufacture was rejected in light of the legislative amendment, which overrides the earlier interpretation.

Conclusion: The Tribunal concluded that the job work activity of pickling and oiling amounts to manufacture under the Central Excise Tariff Act, 1985, post 16.03.2012, and hence is not liable to service tax as a service.

Issue (b): Liability to Pay Service Tax on Job Work Activities During the Disputed Period

Relevant legal framework and precedents: The definition of Business Auxiliary Services under Section 65(19) of the Finance Act, 1994 (upto 30.06.2012), and the definition of 'service' under Section 65B(44) (w.e.f. 01.07.2012) were considered. The relevant notifications exempting service tax liability on job work activities, namely Notification No. 8/2005-Service Tax dated 01.03.2005 and Notification No. 25/2012-Service Tax dated 20.06.2012, were analyzed.

Court's interpretation and reasoning: The Tribunal noted that the activity of 'production or processing of goods for, or on behalf of, the client' is a taxable service under BAS. However, the Central Government had exempted such services by Notification No. 8/2005, subject to conditions including that raw materials are supplied by the client and the processed goods are returned to the client for use in manufacture of excisable goods on which duty is paid.

Key evidence and findings: Certificates issued by principal manufacturers confirmed that raw materials (HR coils) were supplied to appellants, processed by them, and returned for further manufacture with appropriate excise duty paid on the finished goods.

Application of law to facts: The conditions of Notification No. 8/2005 were satisfied by the appellants. Although this notification was rescinded on 20.06.2012, the Mega-exemption Notification No. 25/2012 restored exemption for job work activities subject to similar conditions, which were also complied with.

Treatment of competing arguments: The Revenue argued for service tax liability, but the Tribunal found that the exemption notifications applied fully to the appellants' job work activities throughout the disputed period.

Conclusion: The appellants were not liable to pay service tax on job work activities for the entire disputed period from 2007-2008 to 2014-2015, as the exemption notifications applied.

Issue (c): Applicability of Exemption Notifications

Relevant legal framework and precedents: Notification No. 8/2005-Service Tax exempted service tax on production or processing of goods for the client, subject to conditions. Notification No. 25/2012-S.T. reintroduced similar exemption for job work activities from 20.06.2012 onwards. The legislative framework and conditions for exemption were carefully examined.

Court's interpretation and reasoning: The Tribunal found that the appellants complied with the conditions of these notifications, including that the processed goods were returned to the principal manufacturers who paid excise duty on the final products.

Key evidence and findings: The certificates from principal manufacturers verified compliance with the conditions of exemption notifications.

Application of law to facts: The exemptions were applicable throughout the disputed period, including the period after the rescission of Notification No. 8/2005, as the exemption was restored by Notification No. 25/2012.

Treatment of competing arguments: The Revenue's argument that the notifications did not apply was rejected based on documentary evidence and the legal provisions.

Conclusion: The exemption notifications shielded the appellants from service tax liability on job work activities during the entire disputed period.

Issue (d): Effect of Legislative Amendment (Note 6 to Chapter 72) on Service Tax Liability

Relevant legal framework and precedents: Clause 141 of the Finance Bill, 2012 inserted Note 6 to Chapter 72 of the Central Excise Tariff Act, 1985, deeming pickling and oiling processes on goods under Chapter 7208 as manufacture.

Court's interpretation and reasoning: The Tribunal held that this legislative fiction overrides earlier interpretations and excludes such processes from the ambit of service tax as they are now considered manufacture attracting central excise duty.

Key evidence and findings: The appellants' activities fall squarely within the scope of this legislative amendment.

Application of law to facts: Since the process is deemed manufacture, the activity cannot be treated as a taxable service, avoiding double taxation.

Treatment of competing arguments: The Revenue's reliance on earlier circulars was held to be superseded by the legislative amendment.

Conclusion: The legislative amendment excludes pickling and oiling job work from service tax liability post 16.03.2012.

3. SIGNIFICANT HOLDINGS

"Since the legislative mandate is to consider the process of pickling/oiling of the goods under such chapter is manufacture, then the said activities cannot be considered as 'service' for the purpose of payment of service tax thereon, as that would amount to double taxation, for which there is no sanction under the law."

"...the conditions laid down in the notification have been duly complied with inasmuch as the raw materials received in the factory by the principal manufacturers were duty paid on which CENVAT credit was availed, and thereafter the same were sent to the appellants for carrying out the job work, and the resultant intermediate products were supplied back to the principal manufacturer, for further use in or in relation to the manufacture of ultimate excisable final products, on which appropriate duty was paid as per the Tariff Act of 1985."

"In terms of the notification dated 01.03.2005, as amended, and subsequent notification dated 20.06.2012, the appellants should not be liable for payment of service tax during the entire period from April, 2007 to March, 2015, in respect of the production/ processing activities carried out by them, from the raw materials supplied by the principal manufacturers."

Core principles established include:

- Job work involving pickling and oiling of HR coils under Chapter 7208 is deemed manufacture under the Central Excise Tariff Act, 1985, post 16.03.2012.

- Activities deemed manufacture cannot simultaneously be subjected to service tax as a service, avoiding double taxation.

- Exemption notifications No. 8/2005 and No. 25/2012 shield job work activities involving production or processing of goods for the client, subject to conditions which were fulfilled.

- The burden of service tax on such job work activities does not arise during the disputed period from 2007-2008 to 2014-2015.

Final determinations:

The impugned order confirming service tax demands, interest, and penalties on the appellants was set aside. The appellants were held not liable to pay service tax on job work activities involving pickling and oiling of HR coils during the entire disputed period.