K. N. Food Industries Pvt. Ltd. Vs Commissioner of CGST & Central Excise (CESTAT Allahabad)
The CESTAT Allahabad considered an appeal involving the levy of service tax on ex-gratia job charges received by a job worker manufacturing confectionery on behalf of a principal manufacturer. Under the manufacturing agreement, the principal supplied the raw materials, while the appellant manufactured the goods and cleared them on payment of Central Excise duty based on the maximum retail price declared by the principal. The appellant received agreed job charges on a per kilogram basis. However, where the principal failed to utilise the appellant’s production capacity to the mutually agreed level, the appellant became entitled to ex-gratia job charges calculated on factors such as maximum daily output, monthly packing capacity and output ratio to compensate for the resulting financial loss. The appellant raised invoices for such amounts, which were paid by the principal.
The Department issued a show cause notice demanding service tax for the period from July 2012 to March 2015, alleging that receipt of the ex-gratia job charges amounted to a taxable service. The demand of ₹45,03,712, together with interest and penalties under Sections 77(2) and 78 of the Finance Act, 1994, was confirmed by the adjudicating authority and upheld on appeal.
