Shifting of goods within factory of client is neither BAS nor Cargo Handling Services

CESTAT, NEW DELHI BENCH

Sharwan Kumar

Versus

Commissioner of Central Excise, Chandigarh-I

FINAL ORDER NOS. ST/A/669-670 OF 2012-CUS

MISC. ORDER NO. ST/MO/388 OF 2012-CUS

MISC. NO. ST/457 OF 2012

APPEAL NOS. ST/515 OF 2009 & ST/1260 OF 2011

OCTOBER 30, 2012

ORDER

Mathew John, Technical Member 

Two Appeals filed by the same appellant are being considered in this proceeding because the issues involved in both the appeals are the same.

2. The appellant was undertaking certain jobs within the factory of JCBL Ltd which was manufacturing bus bodies falling under chapter 8707 of the Central Excise Tariff. The work done and the piece rate for such jobs are illustrated as under:

3. Revenue was of the view that the above activities carried out by the appellant amounts to “production or processing of goods for, or on behalf of, the client” as specified in clause (v) of section 65 (19) of Finance Act, 1994 defining “Business Auxiliary Service” and service tax was payable which was not paid. So Revenue issued one Show Cause Notice for demanding tax amount not paid for the period 01-06-05 to 31-12-07 and another for the period Jan 08 to Sep 08. After adjudication, demands for tax amounts of Rs.23,39,109/- and Rs.94,180/- are confirmed along with interest and penalties.

4. The contention of the appellant is that the appellant was doing certain activities in the factory of a manufacturer of excisable goods and these activities are incidental and ancillary to manufacture and hence covered by the definition of manufacture in section 2 (f) of Central Excise Act, 1944. Further such processes are specifically defined to be “manufacture” in section Note 6 of Section XVII of the Central Excise tariff which reads as under:

“6. In respect of goods covered by this Section, conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article (including ‘blank’, that is an article, not ready for direct use, having the approximate shape or outline of the finished article or part, and which can only be used, other than in exceptional cases, for completion into a finished article or a part), into complete or finished article shall amount to ‘manufacture’.”

5. Thus the argument is that the impugned processes amount to manufacture as per above note consequently they are excluded from the scope of the definition of Business Auxiliary Service at section 65 (19) of Finance Act, 1994. Thus they argue that there cannot be any liability to service tax on the processes done by them on the bus bodies built in the factory of JCBL Ltd.

6. They have an alternate argument that if at all any process is held to be not amounting to manufacture and for that reason considered to fall under the definition under section 65(19), they are eligible for exemption from service tax on such activity as provided in Notification 08/2005-ST dated 01-03-2005. This notification provides exemption to job-workers doing processes not amounting to manufacture on goods supplied by a principal manufacturer subject to the condition that the principal manufacturer pays excise duty on the excisable goods so produced. In this case JCBL was paying excise duty on the bus bodies in the manufacture of which the appellant carried out certain processes.

7. He further points out that the other activities carried out by him, that is loading and unloading of bus body or metal scrap and shifting such material from one place to another in the same factory, will not be classifiable under business auxiliary service because these activities cannot be considered as production or processing. It is also not covered by the definition of cargo handling services in view of the following decisions:

 (i)  Modi Construction Co. v. CCE [2008] 15 STT 507 (Kol – CESTAT)

(ii)  S. B. Construction Company v. Union of India [B.D Civil Writ Petition No. 4089 of 2005, dated 24-8-2006]

8. Opposing the prayer the Ld A. R. for Revenue relies on para 20.16 (a) of impugned order dated 07-09-2009 which reads as below:

“20.16(a) M/s Sharwan Kumar, Contractor is basically providing service with reference to transportation/shifting of bus structure, loading/unloading, shifting of scrap and material supply lines/inspection and rectification of buses like denting and painting. None of the activities amount to manufacture as no new product emerges as a result of these activities. Therefore, they have to pay service tax on the services provided to M/s JCBL (Plant-I) under the category of Business Auxiliary Services. And since information was never provided to the department, there was deliberate suppression and extended period applies.”

9. The Ld. A. R. submits that the appellant was doing denting and painting and shifting of goods. These activities were done in the course of manufacture of goods by JCBL Ltd. However none of these activities per se bring any new goods into existence and hence these activities of the appellant is not manufacturing activities. When the tax liability of the appellant is considered, only the activity carried out by the appellant should be taken into account. There have been judicial decisions to the effect that processes like galvanization, electroplating, painting etc will not amount to manufacture because no new goods come into existence through such processes.

10. The Ld. A.R. also argues that the JCBL has been clearing both dutiable motor vehicles and exempted motor vehicles. Since the appellant has not produced evidence to show that all the goods manufactured by JCBL were cleared on payment of excise duty the appellant cannot claim exemption under Notification 08/2005-ST.

11. We have considered arguments on both sides. We propose to firstly examine the processes of denting and painting. These processes are carried out before the bus body was cleared out of the factory. If such processes are carried out on a bus body which is already built and cleared out of a factory there can be a doubt whether the process will amount to manufacture because no new product comes into existence. The factory of JCB Ltd, was manufacturing bus bodies. The processes of denting and painting are essential for completion of manufacture of bus bodies and we do not find any reason to hold that these processes cannot be considered to be manufacturing activities within the meaning of section 2 (f) of Central Excise Act, 1944. Further going by note 6 of section XVII of Central Excise Tariff, these processes per se also are defined to be process of manufacture because these processes are essential for transforming the semi-finished bus body into a complete and finished article. So if the processes done by appellant alone is seen, then also the argument of Revenue fails.

12. Now the issue to be examined is whether shifting of goods within the factory premises amounts to “production or processing of goods for, or on behalf of, the client”. Obviously the word “production” cannot cover shifting of goods. The word “processing” used in the company of “production” cannot be understood to cover any activity on the goods but only those activities which bring about some change in goods. These words cannot cover activities like shifting, transportation, storage etc within its scope. Shifting of waste arising in the process of manufacturing is one stage further removed from manufacturing activity. So we do not see any merit in the argument of Revenue in this regard.

13. As argued by the appellant this activity did not amount to cargo handling service either because shifting of the goods within the factory premises, when the goods could not be considered to be cargo, could not be considered as “cargo handling”. Anyway such a classification is not under dispute in this proceeding.

14. We also note that the claim of the appellant for exemption under notification 08/2005-ST stands denied on very evasive reasoning that the appellant did not produce evidence of duty payment of goods manufactured by JCBL Ltd. The appellant was doing these jobs within the factory of JCBL and JCBL regularly submits excise returns to the excise department which administers service tax levy also. The whole case is made out based on scrutiny of the records of JCBL Ltd as seen from para 2 of the impugned order dated 07-09-09. There is no effort made by the department to identify exempted clearances, if any, of JCBL Ltd and if so its value. Thus there is an approach of selectively looking at the records of JCBL Ltd to book a case of duty evasion against the appellant which is not a fair approach. At least when pointed out by the appellant, there was an onus on the department to reexamine the records, part of which the department relied upon to book the case, especially when such records were easily accessible to the department. So we also hold that the exemption under notification 08/2005-ST has been denied arbitrarily.

15. For the above reasons we set aside the impugned orders and allow the appeals.

NF