BUSINESS AUXILIARY SERVICE- MEANING OF MANUFACTURE

CESTAT, Mumbai Bench Midas Care Pharmaceuticals v. Commissioner of Central Excise, Aurangabad Ms. Jyoti Balasundaram, Vice President And A.K. Srivastava, Technical Member Order Nos. S/393 and 394/2008/CSTB/C-I Application Nos. ST/S-602 and 603/2008 in Appeal Nos. ST/79 and 80/2008 July 23, 2008 Business Auxiliary Services Section 65 of the Finance Act, 1994, read with section 2(f) of the Central Excise Act, 1944 - Business auxiliary services - Periods 10-9-2004 to 30-6-2006 and 1-7-2006 to 30-6-2007 - Stay order - Whether what is excluded from definition of ‘Business auxiliary services’ is ‘manufacture’ within meaning of 1944 Act which prima facie would mean that it is only manufacture of goods liable to Central Excise duty, which would stand excluded from purview of ‘Business auxiliary services’ - Held, yes - Under a contract entered into with a party, assessee produced for that party, goods of a particular brand and other products on which duty of excise was paid under Medicinal and Toilet Preparations Act, 1955 (MTP Act) - Commissioner held that said activities of assessee amounted to rendering ‘Business auxiliary services’ to that party, for which it was liable to pay service tax - Assessee’s case was that its activity amounted to ‘manufacture’ within meaning of section 2(f) of 1944 Act; that definition of ‘Business auxiliary services’ excludes said activity; and, therefore, it was not liable to pay service tax - Whether since assessee had paid excise duty on manufacture of goods in question under MTP Act and not under 1944 Act, exclusion clause of ‘Business auxiliary service’ was not applicable to instant case - Held, yes - Whether further, in view of facts that as per contract, assessee could not use those specifications/brand names to produce goods on its own account and also could not sell said branded goods in open market, it was apparent that assessee was producing goods for its client and was, thus, prima facie covered under ‘Business auxiliary service’ - Held, yes - Whether, therefore, assessee had not made out a strong case for complete waiver of pre-deposit of amounts demanded and it was to be directed to pre-deposit Rs. 50 lakhs and on such deposit, requirement to pre-deposit balance amount of service tax and penalties would stand waived - Held, yes [Paras 7 and 9] [Stay partly granted] >> FACTS Under a contract entered into with a party, the assessee was engaged in the manufacture of goods for that party, falling under the Central Excise Tariff Act, 1985 and other products on which duty of excise was paid under Medicinal and Toilet Preparations Act, 1955 (the ‘MTP Act’). The Commissioner held the assessee liable to pay service tax in category of ‘Business auxiliary services’. In appeal, the assessee contended that it had charged sales tax/VAT on sale of the said products and paid it to the Government of Maharashtra; that the transaction was of purchase and sale of the products and not for making any provision of service; that as per the Supreme Court’s judgment in the case of BSNL v. Union of India [2006] 3 STT 245, when VAT has been paid on the transaction, no service tax on the same transaction can be levied and, hence, no service tax could be charged from it. It was further contended that its activity amounted to ‘manufacture’ within the meaning of section 2(f) of the 1944 Act, that the definition of ‘Business auxiliary service’ excludes the activity which amounts to the process of manufacture and, therefore, it was not liable to pay service tax. >> HELD The various points raised by the assessee including the Supreme Court’s judgment in the case of BSNL (supra) had been gone into and dealt with in great detail by the Commissioner in the impugned order and the findings recorded. Prima facie, the findings of the Commissioner could not be regarded as arbitrary and unreasonable. The goods of particular brand were produced for particular party and supplied to that party as per the contract. The assessee could not use those specifications/brand names to produce the goods on its own account. The assessee also could not sell those branded goods in open market. Therefore, it was apparent that the assessee was producing goods for the client and was, thus, prima facie covered under ‘Business auxiliary service’. The activity of production of goods in question did not amount to manufacture as per the 1944 Act and the same was covered under the MTP Act. What is excluded from the definition of ‘Business auxiliary service’ is ‘manufacture’ within the meaning of the 1944 Act which prima facie would mean that it is only manufacture of goods liable to Central Excise duty, which would stand excluded from the purview of ‘Business auxiliary service’. [Para 7] The sale price of the goods consists of the cost of raw materials, cost of packing materials, cost of consumables, overheads and profit of the company. The value of taxable service under section 67 can only be the amount assigned to the taxable services rendered and this can be the value received for conversion of input into final product. Therefore, at least on this portion of the value, the service tax prima facie appeared to be leviable. [Para 8] The legality and correctness of the order passed by the Commissioner could be adjudged at the time of the final hearing of the case, when all issues will be considered threadbare. Meanwhile, the assessee had not made out a strong case for complete waiver of the requirement to pre-deposit the amounts demanded vide the impugned order. Keeping in view all facts and circumstances of the case, the assessee was to be directed to pre-deposit a sum of Rs. 50 lakhs towards service tax within eight weeks. On depositing the said amount within the stipulated period, the requirement to pre-deposit the balance amount of service tax and penalties should stand waived and recovery thereof stayed pending disposal of the appeals. [Para 9] >> Case review Kedia Castle Delleon Industries Ltd. v. CCE [Stay Order Nos. 56-57 of 2008, dated 6-2-2008] and Som Distilleries (P.) Ltd. v. CCE 2008-TIOL-356 (CESTAT - Delhi) distinguished. [Para 8] >> Cases referred to BSNL v. Union of India [2006] 3 STT 245 (SC) (para 5), Kedia Castle Delleon Industries Ltd. v. CCE [Stay Order Nos. 56-57 of 2008, dated 6-2-2008] (para 5), Som Distilleries (P.) Ltd. v. CCE 2008 - TIOL - 356 (Cestat - Delhi) (para 5) and Rubicon Formulations (P.) Ltd. v. CC&CST [Stay Order No. S/312/08/CSTB/C-I, dated 10-6-2008] (para 6). V. Sridharan, Bharat Raichandani and S.S. Gupta for the Appellant. Pramod Kumar for the Respondent. nn