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Court : CESTAT, Mumbai Bench
Brief : : Section 65 of the Finance Act, 1994, read
with section 2(f) of the Central Excise Act, 1944 -
Business auxiliary services - Periods 10-9-2004 to
30-6-2006 and 1-7-2006 to 30-6-2007 - Stay order -
Whether what is excluded from definition of ‘Business
auxiliary services’ is ‘manufacture’ within meaning of
1944 Act which prima facie would mean that it is only
manufacture of goods liable to Central Excise duty,
which would stand excluded from purview of ‘Business
auxiliary services’ - Held, yes - Under a contract
entered into with a party, assessee produced for that
party, goods of a particular brand and other products on
which duty of excise was paid under Medicinal and Toilet
Preparations Act, 1955 (MTP Act) - Commissioner held
that said activities of assessee amounted to rendering
‘Business auxiliary services’ to that party, for which
it was liable to pay service tax - Assessee’s case was
that its activity amounted to ‘manufacture’ within
meaning of section 2(f) of 1944 Act; that definition of
‘Business auxiliary services’ excludes said activity;
and, therefore, it was not liable to pay service tax -
Whether since assessee had paid excise duty on
manufacture of goods in question under MTP Act and not
under 1944 Act, exclusion clause of ‘Business auxiliary
service’ was not applicable to instant case - Held, yes
- Whether further, in view of facts that as per
contract, assessee could not use those
specifications/brand names to produce goods on its own
account and also could not sell said branded goods in
open market, it was apparent that assessee was producing
goods for its client and was, thus, prima facie covered
under ‘Business auxiliary service’ - Held, yes -
Whether, therefore, assessee had not made out a strong
case for complete waiver of pre-deposit of amounts
demanded and it was to be directed to pre-deposit Rs. 50
lakhs and on such deposit, requirement to pre-deposit
balance amount of service tax and penalties would stand
waived - Held, yes [Paras 7 and 9] [Stay partly granted]
Citation :
Judgment :
CESTAT, Mumbai Bench
Midas Care Pharmaceuticals
v.
Commissioner of Central Excise, Aurangabad
Ms. Jyoti Balasundaram, Vice President
And A.K. Srivastava, Technical Member
Order Nos. S/393 and 394/2008/CSTB/C-I
Application Nos. ST/S-602 and 603/2008
in Appeal Nos. ST/79 and 80/2008
July 23, 2008
Business Auxiliary Services
Section 65 of the Finance Act, 1994, read with section
2(f) of the Central Excise Act, 1944 - Business
auxiliary services - Periods 10-9-2004 to 30-6-2006 and
1-7-2006 to 30-6-2007 - Stay order - Whether what is
excluded from definition of ‘Business auxiliary
services’ is ‘manufacture’ within meaning of 1944 Act
which prima facie would mean that it is only manufacture
of goods liable to Central Excise duty, which would
stand excluded from purview of ‘Business auxiliary
services’ - Held, yes - Under a contract entered into
with a party, assessee produced for that party, goods of
a particular brand and other products on which duty of
excise was paid under Medicinal and Toilet Preparations
Act, 1955 (MTP Act) - Commissioner held that said
activities of assessee amounted to rendering ‘Business
auxiliary services’ to that party, for which it was
liable to pay service tax - Assessee’s case was that its
activity amounted to ‘manufacture’ within meaning of
section 2(f) of 1944 Act; that definition of ‘Business
auxiliary services’ excludes said activity; and,
therefore, it was not liable to pay service tax -
Whether since assessee had paid excise duty on
manufacture of goods in question under MTP Act and not
under 1944 Act, exclusion clause of ‘Business auxiliary
service’ was not applicable to instant case - Held, yes
- Whether further, in view of facts that as per
contract, assessee could not use those
specifications/brand names to produce goods on its own
account and also could not sell said branded goods in
open market, it was apparent that assessee was producing
goods for its client and was, thus, prima facie covered
under ‘Business auxiliary service’ - Held, yes -
Whether, therefore, assessee had not made out a strong
case for complete waiver of pre-deposit of amounts
demanded and it was to be directed to pre-deposit Rs. 50
lakhs and on such deposit, requirement to pre-deposit
balance amount of service tax and penalties would stand
waived - Held, yes [Paras 7 and 9] [Stay partly granted]
>> FACTS
Under a contract entered into with a party, the assessee
was engaged in the manufacture of goods for that party,
falling under the Central Excise Tariff Act, 1985 and
other products on which duty of excise was paid under
Medicinal and Toilet Preparations Act, 1955 (the ‘MTP
Act’). The Commissioner held the assessee liable to pay
service tax in category of ‘Business auxiliary
services’.
In appeal, the assessee contended that it had charged
sales tax/VAT on sale of the said products and paid it
to the Government of Maharashtra; that the transaction
was of purchase and sale of the products and not for
making any provision of service; that as per the Supreme
Court’s judgment in the case of BSNL v. Union of India
[2006] 3 STT 245, when VAT has been paid on the
transaction, no service tax on the same transaction can
be levied and, hence, no service tax could be charged
from it. It was further contended that its activity
amounted to ‘manufacture’ within the meaning of section
2(f) of the 1944 Act, that the definition of ‘Business
auxiliary service’ excludes the activity which amounts
to the process of manufacture and, therefore, it was not
liable to pay service tax.
>> HELD
The various points raised by the assessee including the
Supreme Court’s judgment in the case of BSNL (supra) had
been gone into and dealt with in great detail by the
Commissioner in the impugned order and the findings
recorded. Prima facie, the findings of the Commissioner
could not be regarded as arbitrary and unreasonable. The
goods of particular brand were produced for particular
party and supplied to that party as per the contract.
The assessee could not use those specifications/brand
names to produce the goods on its own account. The
assessee also could not sell those branded goods in open
market. Therefore, it was apparent that the assessee was
producing goods for the client and was, thus, prima
facie covered under ‘Business auxiliary service’. The
activity of production of goods in question did not
amount to manufacture as per the 1944 Act and the same
was covered under the MTP Act. What is excluded from the
definition of ‘Business auxiliary service’ is
‘manufacture’ within the meaning of the 1944 Act which
prima facie would mean that it is only manufacture of
goods liable to Central Excise duty, which would stand
excluded from the purview of ‘Business auxiliary
service’. [Para 7]
The sale price of the goods consists of the cost of raw
materials, cost of packing materials, cost of
consumables, overheads and profit of the company. The
value of taxable service under section 67 can only be
the amount assigned to the taxable services rendered and
this can be the value received for conversion of input
into final product. Therefore, at least on this portion
of the value, the service tax prima facie appeared to be
leviable. [Para 8]
The legality and correctness of the order passed by the
Commissioner could be adjudged at the time of the final
hearing of the case, when all issues will be considered
threadbare. Meanwhile, the assessee had not made out a
strong case for complete waiver of the requirement to
pre-deposit the amounts demanded vide the impugned
order. Keeping in view all facts and circumstances of
the case, the assessee was to be directed to pre-deposit
a sum of Rs. 50 lakhs towards service tax within eight
weeks. On depositing the said amount within the
stipulated period, the requirement to pre-deposit the
balance amount of service tax and penalties should stand
waived and recovery thereof stayed pending disposal of
the appeals. [Para 9]
>> Case review
Kedia Castle Delleon Industries Ltd. v. CCE [Stay Order
Nos. 56-57 of 2008, dated 6-2-2008] and Som Distilleries
(P.) Ltd. v. CCE 2008-TIOL-356 (CESTAT - Delhi)
distinguished. [Para 8]
>> Cases referred to
BSNL v. Union of India [2006] 3 STT 245 (SC) (para 5),
Kedia Castle Delleon Industries Ltd. v. CCE [Stay Order
Nos. 56-57 of 2008, dated 6-2-2008] (para 5), Som
Distilleries (P.) Ltd. v. CCE 2008 - TIOL - 356 (Cestat
- Delhi) (para 5) and Rubicon Formulations (P.) Ltd. v.
CC&CST [Stay Order No. S/312/08/CSTB/C-I, dated
10-6-2008] (para 6).
V. Sridharan, Bharat Raichandani and S.S. Gupta for the
Appellant. Pramod Kumar for the Respondent.
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