Case Law Details
C.S.T.-Service Tax Vs Deep Industries Limited (CESTAT Ahmedabad)
Introduction: In a recent case, CESTAT Ahmedabad delivered a crucial verdict on the taxation of services related to the compression of natural gas. The case revolved around whether this activity should be considered manufacturing and thereby subject to service tax. This article provides a detailed analysis of the case, its implications, and the tribunal’s decision.
Background of the Case:
The case originated from proceedings initiated by the Revenue against Deep Industries Limited. The revenue argued that the company, during the 2010-2011 period, provided a service related to the compression of natural gas at the premises of M/s. Gujarat Alkalies and Chemicals Ltd. The contention was that this activity fell under the category of Business Auxiliary Service and, therefore, was liable to service tax.
2. Revenue’s Argument:
Shri Rajesh K Agarwal, representing the Revenue, contended that compression of natural gas did not amount to manufacturing. Instead, it should be classified as the provision of business auxiliary service, making it taxable. The Revenue challenged the adjudicating authority’s decision to drop the show cause notice, claiming that it erred in considering compression as manufacturing.
3. Respondent’s Defense:
Shri Punit Prajapati, a Learned Chartered Accountant representing Deep Industries Limited, supported the impugned order. He pointed to Chapter Note 5 to Chapter 27, which explicitly stated that the compression of natural gas amounts to manufacturing. Therefore, he argued that the Revenue’s appeal lacked substance and should be dismissed.
4. Tribunal’s Ruling
Upon careful consideration of both sides’ arguments and a review of the records, the tribunal found that the adjudicating authority correctly dropped the demand for service tax. The tribunal relied on Chapter Note 5 to Chapter 27 of the Central Excise Tariff, which unequivocally classified the compression of natural gas as a manufacturing activity. This classification was not contingent on specific conditions, making it clear that any compression of natural gas for marketing as Compressed Natural Gas (CNG), for use as fuel or any other purpose, should be considered manufacturing.
5. Implications and Conclusion
In light of the tribunal’s ruling, it is evident that compression of natural gas qualifies as a manufacturing activity under Section 2 (f) (ii) of the Central Excise Act, 1944, read in conjunction with Chapter Note 5 of Chapter 27. Consequently, the Learned Commissioner’s decision to drop the show cause notice was upheld, and the Revenue’s appeal was dismissed. The case reaffirms the importance of understanding the specific definitions and classifications under the Central Excise Tariff Act when dealing with service tax matters.
Conclusion: The CESTAT Ahmedabad’s recent ruling in the case of compression of natural gas has clarified the tax implications of this activity. It unequivocally categorizes the compression of natural gas as manufacturing, with no conditions attached, under Chapter Note 5 of Chapter 27 of the Central Excise Tariff Act. This decision has significant implications for businesses providing such services and underscores the importance of correctly interpreting tariff classifications in service tax matters.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The revenue filed this appeal against the impugned order passed by Learned Commissioner Service Tax, Ahmedabad whereby the proceedings initiated against the respondent vide show cause notice dated 20.04.2012 was dropped.
1.2. The brief facts of the case are that the respondent during period 2010-2011 provided service in relation to compression of natural gas at the premises of M/s. Gujarat Alkalies and Chemicals Ltd. The case of the department is that the activity of compression of natural gas was covered under the category of Business Auxiliary Service and the same is liable to service tax. Therefore, the present appeal was filed by the Revenue.
2. Shri Rajesh K Agarwal, Learned Superintendent (AR) appearing on behalf of the Revenue Appellant submits that as per the activity carried out by the Respondent i.e. compression of natural gas does not amount to manufacture therefore it amounts to provision of service of business auxiliary service accordingly the same is taxable therefore the adjudicating authority has erred in dropping the show cause notice by holding that the activity of compression of natural gas amounts to manufacture.
3. Shri Punit Prajapati, Learned Chartered Accountant appearing on behalf of the respondent take the support of the impugned order and submits that there is a clear chapter note 5 to chapter 27 which provides the compression of natural gas is amount to manufacture, therefore the Revenue’s appeal has no substance therefore, the same be dismissed.
4. We have carefully considered the submission made by both sides and perused the records. We find that the adjudicating authority has dropped the demand of service tax on the ground that the activity carried out by the appellant amounts to manufacture in terms of note 5 to Chapter 27 of Central Excise Tariff. For ease of reference the said chapter note is reproduced below:-
“5. In relation to natural gas falling under heading 2711, the process of compression of natural gas (even if it does not involve liquefaction), for the purpose of marketing it as Compressed Natural Gas (CNG), for use as a fuel or for any other purpose, shall amount to ‘manufacture’.”
From the reading of the above chapter note it is clear that compression of natural gas is amount to manufacture and no condition was attached to the activity of compression therefore, the activity carried out by the appellant is indeed a manufacturing activity in terms of Section 2 (f) (ii) of Central Excise Act, 1944 read with chapter note 5 of Chapter 27 which mandates that the activity of compression of natural gas for the purpose of marketing it as Compressed Natural Gas(CNG) for use as a fuel or for any other purpose shall amount to manufacture.
5. Accordingly in our considered view, the Learned Commissioner has rightly dropped the proceeding of the show cause notice, therefore, we do not find any infirmity in the impugned order. Hence the same is upheld, Revenue’s appeal is dismissed. Cross Objection also stands disposed of.
(Pronounced in the open court on 11.09.2023 )
