No Service Tax on Fixed Components of Job Charges forming part of transaction value

Brindavan Bottlers Pvt. Ltd. Vs. Commissioner of Central Goods (CESTAT Allahabad)

We find that the appellant have actually entered into an agreement for manufacture on job work basis. Evidently, as per the agreement the job charges have been spread over in two tier billing i.e. fixed charges and variable charges. The reason being that in summer season there is more demand of packed water and beverages, whereas in other months, the demand is lower. Keeping in view the constant availability of funds to meet the fixed charges and finance charges and for variable cost towards job charges, two tier billing has been provided, to the appellant job worker to meet the financial obligation round the year. Admittedly, appellant has paid the excise duty on the goods manufactured and cleared for the principal manufacturer, as is evident from the copy of excise returns filed before the Tribunal. In this view of the matter, we conclude that the job charges received by the appellant have formed part of the cost of manufacture, which have suffered excise duty. Accordingly, we hold that service tax cannot be levied on the fixed components of job charges. We also find that under similar facts and circumstances in the case of BOC India Limited vs. Commissioner of Central Excise, Jaipur -2018 (10) GSTL 309 (Tri. Del.) it was observed that BOC was engaged in the manufacture and supply of gases and are liable to pay Central Excise duty. BOC put up the storage facility inside the client premises to store such gases for subsequent consumption. For such activity, they are collecting fixed facility charges apart from the sale consideration for the gas. Such fixed facility charges were proposed to be taxed under Section 65(105) (zzzzj) of the Finance Act, 1994, under the head SOTG. The Board vide letter dated 10.11.2014 have clarified that such facility charges form part of transaction value for the purpose of Central Excise duty. Accordingly, this Tribunal set aside the order and allowed the appeal of BOC India Limited.

FULL TEXT OF THE CESTAT ALLAHABAD ORDER

That the appellant is a job Worker of Hindustan Coca Cola Beverages Pvt. Ltd (HCCBPL in short) and accordingly registered with the Central Excise Department for manufacturing of “Packaged Drinking Water” & “Aerated Water” falling under Chapter 22011010 & 22021020 of CETA 1985.

2. The Brief facts of the case are that the department had conducted an audit in the year 2015, the audit team after going through the invoices related to “Job Charges” raised by the appellant, had observed that the appellant is receiving the Job charges from the Principal Manufacturer (HCCBPL) in two parts, one invoice represents the fixed charges and referred as 1^st Invoice and second invoice relates to variable cost, referred as 2^nd Invoice . The Variable Charges consist of Power, Fuel, Man power, consumables and are subject to review on quarterly basis, whereas for fixed charges, no such bifurcation were given in agreement but the appellant had informed to the audit team that it relates to ^„finance cost‟ and other fixed cost(s) of the entire setup. The audit team termed the fixed job charges as ^„Supply of Tangible Good Service‟ as defined under the Finance Act 1994 and on such part, raised the demand of service tax amounting to Rs 4,68,36,586/- by invoking extended period of limitation by alleging suppression of facts under Section 73(1) of the Finance Act 1994. Here it is pertinent to mention that in the agreement with the Principal Manufacturer, it was clearly mentioned that “in any financial year total job charges, charged by the packer (appellant) through (1^st & 2^nd invoices), shall not exceed the total Job Charges determined by the bottler”.

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