Pharmanza India Pvt Ltd Vs C.C.E. & S.T. (CESTAT Ahmedabad)
Introduction: The Central Excise and Service Tax Appellate Tribunal (CESTAT) in Ahmedabad recently delivered an order in the case of Pharmanza India Pvt Ltd vs C.C.E. & S.T. The decision clarifies that the manufacture of excisable goods, specifically drugs, is not taxable under business auxiliary service. The ruling can have significant implications for pharmaceutical companies involved in the manufacture of drugs under loan licensing arrangements.
Background: Pharmanza India Pvt Ltd engaged in the manufacturing of drugs like Tetracycline and Neocycline, acting as a loan licensee for various pharmaceutical companies. The department argued that since these drugs are exempted from central excise duty, Pharmanza should pay service tax under business auxiliary service.
The Legal Point: Shri Amal Dave, Counsel for Pharmanza, contended that the activity should be classified as manufacturing under Section 2 (f) of the Central Excise Act, 1944. This activity, he argued, is explicitly excluded from the definition of Business Auxiliary Service. He relied on multiple case laws to substantiate his point.
The Definition Conflict: The Revenue department interpreted the definition of business auxiliary service, specifically sub-clause (v) related to the “production of goods on behalf of clients,” to include Pharmanza’s manufacturing activities. The tribunal, however, highlighted that any activity that falls under the definition of ‘manufacture’ according to the Central Excise Act, 1944, is exempt from being considered a business auxiliary service.
The Role of Exemption Notification No. 08/2005-ST: The Revenue department also cited Exemption Notification No. 08/2005-ST to substantiate its demand for service tax. However, the tribunal observed that this notification was irrelevant since Pharmanza’s activities fell under manufacturing and not business auxiliary service.
Conclusion: The CESTAT Ahmedabad’s ruling in Pharmanza India Pvt Ltd vs C.C.E. & S.T. establishes a crucial precedent, clearly indicating that the manufacturing of drugs, which falls under Section 2 (f) of the Central Excise Act, 1944, cannot be taxed under business auxiliary service.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the case are that the appellant are engaged in the activity of manufacturing of drugs like Tetracycline, Neocycline etc as a loan licensee for various companies. The case of the department is that since the drugs manufactured by the appellant are exempted from payment of central excise duty. Hence, the appellant is liable to pay service tax under the category of business auxiliary service on the gross amount received by the appellant for manufacture and supply of the drugs.
2. Shri Amal Dave, Learned Counsel appearing on behalf of the appellant at the outset submits that the activity carried out by the appellant is admittedly a manufacturing activity of excisable goods in terms of Section 2 (f) of Central Excise Act, 1944. He further submits that the manufacturing activity in terms of section 2 (f) isexcluded from the definition of Business Auxiliary Service where under the demand was confirmed under sub head “production of goods on behalf of the clients”. Therefore, the demand is not sustainable.
2.1 He further submits that the entire basis for confirmation of demand is that the appellant is not eligible for exemption notification No. 08/2005- ST dated 01.03.2005 since the final product is exempted. It is his submission that as submitted above when activity itself is nota taxable activity being the activity is a manufacturing in terms of Section 2 (f) the said notification is irrelevant and on that basis the demand cannot be confirmed. He placed reliance on the following judgments:-
