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 1st Invoice and second invoice relates to variable cost, referred as 2nd 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 (1st & 2nd invoices), shall not exceed the total Job Charges determined by the bottler”.
3. The Audit team had also observed that the appellant had availed & utilized inadmissible CENVAT Credit amounting to Rs 11,05, 068 and raised the demand for such inadmissible Credit (Rs. 8,29,510/- for dismantling and packing charges plus Rs. 2,75,558/- for Commercial & Industrial Construction and Works Contract service.
4. The contention of the Revenue is that the Fixed Charges do not relate with the manufacturing activity, hence it cannot be termed as fee or job charges for Job work, and liable to be taxed under the Finance Act 1994. Department emphasised that for such type of transaction, there is no exemption in the Mega Exemption Notification 25/2012-ST dated 20.06.2012, nor such transaction falls in the negative list as contained in Section 66 D. For raising & confirming the demand, department had categorically held that the excise duty was paid by the Principal manufacturer whereas as per the ER-1 return, duty has been discharged by the appellant itself. For denial of CENVAT Credit availed on various input services, department alleged that such services do not qualify as “input services” as defined under CCR 2004 without analysing the nature of service received by the appellant.
5. The show cause notice was adjudicated on contest by the learned Commissioner and the proposed demands confirmed with penalty. The case of the appellant is that the total job charges (fixed & Variable) received by the appellant from the Principal manufacturer has already suffered Excise duty, and this fact is evident from the monthly excise return ER-1, (copy is enclosed in appeal paper book), whereas the adjudicating authority in his order has wrongly mentioned that the Excise duty has been discharged by the Principal manufacturer – HCCBPL, which is not based on actual fact.
6. The reason for segregation of total job charges into fixed & variable is that in case of no or less demand in off season, the appellant would be in a position to meet out its Financial cost & other fixed expenses incurred on maintenance of the Plant, but in any case as per the agreement, the total Job charges in any financial year, charged by the appellant through (1st & 2nd invoices) shall not exceed the total Job Charges, determined by the bottler”. Thus it is crystal clear that fixed charges were also part of the Job charges recovered by the appellant for manufacturing of excisable goods. Nowhere in the agreement it was mentioned that the fixed charges do not form part of transaction value for the purpose of Central Excise Duty. Since the entire Job Charges have already suffered Excise Duty, demand of service Tax again on the same transaction or value, amounts to double demand, which is not permissible in the scheme of service tax.
7. The process undertaken by the Appellant amounts to manufacture as per the definition of manufacture, and the Appellant is discharging duty of excise on the goods so manufactured, and only the process which does not amounts to manufacture is liable to be taxed under the Finance Act 1994. Before the introduction of Negative list regime, the „Business Auxiliary Services‟ deals with such type of situation and in the exclusion clause of the definition of BAS any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).
After the introduction of Negative list, Section 66D(f) of the Finance Act, 1994, any process amounting to manufacture or production of goods is not a taxable service . Accordingly, it is clear that if the process amounts to manufacture, then no service tax liability arises. The Mega exemption Notification Number 25/2012 dated 20.06.2012 also provides that “any goods on which appropriate duty is payable by the principal manufacturer is exempt from the levy of service tax. (Serial No 30 of Mega Exemption). From the aforesaid exemption notification it is apparent that the activity of manufacture is exempt from the levy of service tax, if appropriate duty has been paid by the manufacturer. The same concept has also been mentioned in the Negative list of services contained under section 66D of Finance Act 1994, at serial number (f) of the aforesaid section. As per subsection (f) of section 66D, services by way of carrying out any process amounting to manufacture or production of goods, excluding alcoholic liquor for human consumption.
8. The Appellant further submits that for the sake of argument, if the Appellant is liable to pay service tax on Job Charges received from HCCBPL, even then service tax so paid on job charges would be available as CENVAT Credit while making payment of duty on goods manufactured as a result of such Job work. In other words the entire exercise is „Revenue Neutral.‟
9. The appellant further submits that the adjudicating authority had confirmed the demand on the ground, which was not alleged in the SCN, hence the adjudicating authority had gone beyond the SCN which is not permissible in the law. Hence the entire impugned O.I.O is liable to be set aside on this ground alone.
9.1. So far the disallowance of cenvat credit of Rs.8,29,510/- on dismantling charges paid to vendors, the appellant submits that the plant and machinery which were owned by HCCBPL were dismantled from the Varanasi plant of the principal and the same were relocated in the manufacturing unit of the appellant. Such machinery is being used by the appellant for manufacture of dutiable goods which is undisputed. There is no change of ownership of the machinery which continues to be HCCBPL. Such machinery have got a direct nexus with the manufacturer of excisable goods and hence the dismantling expenses incurred by the appellant are allowable as input service and accordingly the learned Commissioner have erred in disallowing cenvat credit on the same. Further, reliance is placed on the ruling of this Tribunal in the case of Paradise Plastics Enterprises Ltd., vs. CCE&ST, Noida -2015 (39) STR 889 (Tri. Del.) and also in the case of Bajaj Hindustan Ltd., vs. CCE, Meerut-I -2014 (33) STR 305 (Tri. Del.).
9.2 So far as denial of cenvat credit of Rs. 2,75,558/- is concerned, the allegation of Revenue is that this relates to civil construction which is not based on the correct facts.
9.3 As per the audit memo, the expenditure incurred is for erection or sinkage of bore well in the factory premises. For the manufacture of beverages for human consumption availability of pure and good quality drinking water is essential and is the major raw material or input. Thus the expenditure or service incurred for obtaining the inputs – pure drinking water is allowable within the definition of input and input service as defined in Rule 2(k) & (l) of Cenvat Credit Rules, 2004. Further, appellant has incurred expenditure in setting up of plant and machinery which is not prima facie in the nature of civil construction. The appellant had categorically stated that the expenditure is attributable to erection of machinery and not for any civil construction which contention have not found to be untrue. Further, appellant have erected storage tank having chemical coating. Storage tank is a specified capital asset as defined in Rule 2(a)(A) of Cenvat Credit Rules. Accordingly, appellant is entitled to cenvat credit for the same.
9.4 Further, as per audit note regarding Effluent Treatment Plant (ETF) which also defined as capital goods under Rule 2(a)(A) of Cenvat Credit Rules. Thus, any service used by the appellant in erecting a capital asset for manufacture of dutiable goods is allowable input service. Unless plant and machinery is erected or set up, no manufacture of dutiable goods can take place.
9.5 Further, the appellant got the work of reinstallation of 30 MTR exhaust steel tower and miscellaneous charges for design report on which it has taken cenvat credit of Rs. 93,381/-, which is actually erection of pipeline for carrying the syrup from one machine to the other during the process of manufacturing. The same have wrongly been considered as erection of steel door by the Revenue. Such erection of pipeline with exhaust facility is integral part of plant and machinery for manufacture of dutiable goods, being beverages and mineral water. Accordingly, appellant prays for allowing the cenvat credit disputed by the Revenue.
10. Learned Authorised Representative for the Revenue contented that effective control & possession of plant & machinery is not with the Principal Manufacturer HCCBPL, hence fixed charges fulfils the condition of „supply of tangible goods service‟ as provided under the Finance Act 1994 and attracts service tax. Learned Commissioner have rightly held that negative list entry only cover the activity amounting to manufacture i.e. principal manufacturer had paid Central Excise duty on the said amount. But in the instant case, the appellant have received fixed charges on account of cost of assets deployed by the noticee. The fixed charges have been received on account of fixed expenses to be met for the reason that whenever there is no production of goods for lack of demand in the market as admitted by the appellant also. Learned Commissioner have rightly held that the fixed amount received on per annum basis is nothing but a compensation received on the investment made against the land, factory building and plant and machinery and other facility provided to the principal manufacturer. Moreover, the fixed charges received by the appellant were not in lieu of job charges for manufacturing of excisable goods but was consideration for assets deployed by them. It has been further held that as per Section 55B(44) of the Finance Act, 1994 service means any activity carried out by a person for another for consideration and includes the „declared services‟. In the instant case, the appellant is carrying out an activity which is in nature of service for another person (HCCBPL), for consideration – fixed charges. The activity of appellant is polarizing act, i.e. non manufacturing of goods for any other manufacturer, as job work is restricted for HCCBPL and they are paid some consideration for this activity. Such activity is taxable as a declared service 66E(e) which provides – agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.
10.1 Learned Authorised Representative for the Revenue also supported the impugned order with respect to disallowance of cenvat credit.
11. In reply the appellant Counsel contends while making such an allegation Revenue had not considered that the effective or general control does not mean always physical control, and even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be the effective or general control over the goods. The approvals, concessions, licences and permits in relation to goods would also be available to user of the goods, even if such licences or permits are in the name of owner (transferor) of the goods; and during the period of contract, exclusive right to use goods along with permits, licences, etc., vests with the lessee. If we apply the ratio of the law laid down by the Higher Judicial Forum, to the facts of the present case, the transaction involved herein cannot be termed as “supply of tangible goods for use service” for the following reasons-
a. All the Machineries were under the direct control of the Principal manufacturer and the Appellant cannot use the machines for any other manufacturer or purpose.
b. During the contract period, the Appellant works only on the direction of the Principal manufacturer and the Principal manufacturer decides the manufacturing schedule of the factory.
c. Having transferred the right to use goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.
12. Having considered the rival contentions, 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.
13. As regards cenvat credit, we find that as per the definition of input service, any service availed by the manufacturer of dutiable goods having direct or indirect nexus with the manufacturer of dutiable goods is an allowable input service. We further find that there is no nature of pure civil construction service in the facts and circumstances and the facts stated by the appellant and as taken by audit team are undisputed. From the details as recorded in para 22 of the show cause notice for disallowing cenvat credit of Rs. 2,75,558/-, we find that this relates to input services which are directly relatable to procurement of input and/or erection of plant and machinery. We further find that erection of storage tank and/or pipeline for carrying the concentrate or beverage for processing from one machinery or the other are essential part of the manufacturing process and accordingly we hold that the input credit is rightly taken by the appellant. Accordingly, this ground is also allowed in favour of the appellant.
14. In view of our findings, we set aside the impugned order and allow the appeal. The appellant is entitled to the consequential benefits.