Rachna Gupta ORDER
Rachna Gupta, Member (J)
1. Present order disposes of several appeals as detailed below being filed by the respective appellant being aggrieved by the respective orders as detailed below. All these appeals are taken together because of the question for consideration for them being similar. Hence, all are disposed of by the present common order.
2. The facts found in these appeals as relevant for present adjudication are as follows:-
2.1 That the appellants herein are the house labour contractors of M/s. Larsen & Toubro Ltd. (L & for short) who is the principal manufacturer of transmission towers and is getting one or the other job work for the purpose from all the appellants. On an intelligence being gathered by the Department, the Regional Unit of Indore, it was alleged that the appellants are performing such activities for the L & T which falls under the definition of Business Auxiliary Services against the charges received for the purpose. However, they are not paying the due Service Tax on the gross amount received by them from L & T. They deliberately have not got registered themselves with the Service Tax Department. Resultantly, such show cause notices for such period and purpose as below were served upon them:-
3. All these orders under challenge have confirmed the demand denying the activity of the appellants to be the activity of manufacture rather holding it to be the one under clause 5 of Section 65(19) of Finance Act, 1944. The Adjudicating authority denied the benefit of exemption Notification No. 6/2005 : MANU/EXCR/0009/2005 dated 1st March, 2005. However, benefit of exemption Notification No. 8/2005 dated 1st March, 2005 was extended in favour of the appellants. Aggrieved of these orders the present appeals have been filed.
4. We have heard Mr. P.H. Parekh & Mr. Sunil Goyal alongwith Ms. Malvika, Advocate and Vishal Prasad, Advocate, Pratyusha, Advocate for the appellant and Mr. Sanjay Jain & Shri G.R. Singh ld. D.Rs. for the Department.
5. It is submitted on behalf of appellant that Department has wrongly alleged the activities of the appellant to fall under the category of the Business Auxiliary Services, it is mentioned that the same is very much a manufacturing activity, as the appellants are engaged in fabrication of tower parts which includes cutting of angles, punching of angles, computerized numbering plates on which parts are erected on the site, notching, bending, drilling etc. It is submitted that holes are made in the angles as per the drawings provided by the client/L & T. It is further impressed upon that all these activities, since, aid in manufacturing of the final product i.e. the transmission tower. Therefore, these activities are incidental or ancillary to the completion of manufactured product and as such fall very much in the definition of manufacture. The Orders under challenge to that effect are accordingly, prayed to be set aside. The appellants have mainly relied upon the decision of Larger Bench of this Tribunal in the case of Mahindra & Mahindra Ltd. vs. CCE, Aurangabad - MANU/CE/0605/2005 : 2005 (190) ELT 301.
6. Ld. DR while justifying the impugned order has impressed upon the findings of Commissioner (Appeals), where appellants were found to engage in the work of cutting of angles (to size), drilling, Punching, bending stamping etc. as instructed by L & T. They are getting paid on the quantum of work done on M.T. basis and not on the basis of workers employed or on commission basis. Also since no new product emerges in the process, these activities do not amount to manufacture. But are the activities in clause 5 of definition of Business Auxiliary Service in Section 65(19) of the Finance Act. Any alleged infirmity in the order is vehemently denied and appeals are prayed to be rejected.
6.1 In support of his argument ld. DR relied upon the following case laws:-
1. CCE, Bangalore-II vs. Osnar Chemical Pvt. Ltd. - MANU/SC/0022/2012 : 2012 (276) ELT 162 (SC)
2. Haryana State Electricity Board, Steel STR.FAB. Workshop vs. ACC & CE - 2008 (221) ELT 198 (P & H)
3. Collector of C. Ex., Jaipur vs. Pratap Rajasthan Special Steel Ltd. - MANU/CE/1084/1998 : 1999 (108) ELT 437 (Tri.)
4. PSL Ltd. vs. CCE, Rajkot - MANU/CS/0188/2008 : 2009 (16) S.T.R. 247 (Tri. - Ahmd.)
5. CCE, Chennai-II vs. Tarpaulin International - MANU/SC/0551/2010 : 2010 (256) ELT 481 (SC)
6. Orient Packaging Ltd. vs. CCE, Meerut-I - MANU/CE/0385/2011 : 2011 (23) STR 167 (Tri.-Del.)
7. Rathore Engg. Works vs. CCE, Chandigarh - MANU/CE/0693/2011 : 2012 (27) STR 37 (Tri.- Del.)
7. After hearing all the parties, we are of the considered view that the issues to be decided herein are:
(1) whether the activities of the respective appellant as mentioned above are classifiable as business auxiliary service or as manufacture.
(2) Whether the appellant is entitled for the benefit of exemption Notification No. 6/05 : MANU/EXCR/0009/2005dated 1st March, 2005.
(1) For adjudicating for this issue, the definition of BAS as well as manufacture is important to be looked into which is as follows:-
Section 65(19) of the Finance Act, 1994, defines the business auxiliary service and the relevant part of the same is reproduced below:-
"19) "business auxiliary service" means any service in relation to-
(i) ......
.......
(v) Production or processing of goods for, or on behalf of, the client.
and includes services as a commission agent, but does not include any activity that amounts to manufacture of excisable goods.
Explanation - For removal of doubts, it is hereby declared that for the purposes of this clause,-
(a)........
(b)........
(c) "manufacture" has the meaning assigned to it in clause (f) of Section 2 of the Central Excise Act, 1944."
(Emphasis Supplied)
5. The relevant part of Section 2(f) of the Central Excise Act, 1944 reads as follows:-
"2(f) "manufacture" includes any process,-
(i) Incidental or ancillary to the completion of a manufactured product;
(ii) ....................; or
(iii) .....................
and the word "manufacturer" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his account."
7.1 Word "manufacture" as defined above has been a subject matter of interpretation by various judgments of this Tribunal as well as of the Hon'ble Supreme Court.
"(i) Hon'ble Supreme Court in the case of Collectorate, Central Excise Mumbai vs. S.D. Chemicals Private Limited reported in MANU/SC/1018/1995 : 1995 (2) SCC 336 at para 12 page 342 held that the definition of the expression "manufacture" ... is not confined to the natural meaning of the expression "manufacture" but is an expansive definition. It was also held that one of the main tests ... is whether on account of processes employed or applied by the assessee, the commodity so obtained is no longer regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the processes.
(ii) Brakes India Limited vs. Superintendent of Central Excise and Others reported in MANU/SC/1609/1997 : 1997 (10) SCC 717 at paras 1 and 2 page 717 wherein it was held by the Hon'ble Supreme Court that if by a process, a change is effected in a product, which was not there previously, and which change facilitates the utility of the product for which it is meant, then the process is not a simple process, but a process ancillary to the completion of a manufactured product. It was also held that when adopting a particular process, if a transformation takes place, which makes the product have a character and use of its own, which it did not bear earlier, then the process would amount to "manufacture"."
8. Now coming to the authority as is relied upon by the appellant i.e. Mahindra & Mahindra (supra), it is observed that finding of Larger Bench of Tribunal therein are as follows:-
10. There can be no dispute over the proposition that immovable property, be it immovable steel structure embedded in earth or a constructed building, cannot be subjected to excise duty which applies to excisable goods, i.e. to movables. In the making of an immovable structure or building are used a variety of movable. Raising iron and steel structures like sheds involves fabrication work and many of the articles used in raising the structure come into existence through fabrication as per the pre-determined design to be fitted into the structure that is to be raised. For example, roof frame may be fabricated for the roof structure of a shed. Such fabrication of frames may be done at the construction site or at some factory premises. The iron and steel frames fabricated at the factory premises away from the site of construction would be brought to the site for their use in erecting the structure. The frames pre-fabricated and brought at the site and frames fabricated the site of erection both are goods manufactured. There will be variety of parts of structures of iron and steel, that can be fabricated either at the site or at some factory premises away from the site. The iron and steel raw material, such as angles, plates, tubes, etc., are used in making parts of structures and they acquired a distinctly different shape to suit the structural designs. For example, if iron or steel angles and plates are cut to make a steel table or chair which can be dismantled, it cannot be said that there are no goods manufactured because the iron and steel angles or plates remain such angles and plates though of different sizes, and merely holes are punched and screws fitted. Unlike in liquid mixtures, the raw material of iron and steel or wood will retain their identity, but it is precisely their being cut, and designed, punched and fitted to make an article commercially known that involves manufacture of an article distinct from the angles, sheets, tubes etc. used in it. Mere drilling holes or mere cutting jobs in isolation may not by themselves involve manufacture of an article, but, converting raw material like angles, tubes, plates etc. to bring about a distinct commodity will surely amount to manufacture as it is not "mere" drilling holes or cutting, but the activity is aimed at bringing about a distinct commodity. Thus, making of porta cabin from iron and steel angles with, roof frame-work i.e. trusses, doors, windows, ladders in it made by drilling holes and cutting the raw material, will be a movable structure having identity as a distinct marketable commodity. When the porta cabin is dismantled it nonetheless remains the manufactured products i.e. porta cabin dismantled or disassembled. The material such as angles, rods, shades, sections plates, tubes, etc. of such designed structure in their pre-assembled or disassembled form are prepared for use in the said structure, namely porta cabin. One cannot, with any conviction or authority, say that these dismantled parts of the structures are raw material used in its original form and that mere cutting or drilling holes has made no difference. The items in the parenthesis of Heading 7308 described as excisable goods include roofs, roofing frame-work, doors, windows and their frames, thresholds for doors, shutters, pillars, column, balustrades pillars, sheets of iron and steel, each one of these items has a complete distinct identity. The contractor undertaking the works contract for erecting a structure may not himself manufacture all such items used for structure. He may order the doors and windows to be made by a particular manufacturer and roof frame-work by the other, depending on the specialization and expertise of the manufacturer of different items. The contractor may supply designs and raw material for various parts of structures and get the work done on job work basis. To save time and expenses he may get the fabrication done at the site of construction instead of getting it done at some distance in a factory. When the required parts are fabricated they will be fixed as per the designed structure and will continue to be moveable object until made immovable by permanently fixing them in the designed immovable structure. To say that no parts of the structures came into existence as distinct commodities because ultimately they got permanently fixed into an immovable structure will run counter to the legislative intent to impose excise duty on such excisable goods at a stage when they have a separate identity as marketable goods anterior to their being permanently fixed in the immovable structure.
In our opinion, all these parts of structures which were fabricated These were not simply members such as angles, etc., with holes or cut to a different size, but the process was undertaken to bring them into a particular commercially known shapes and assemble them for that purpose as per the designs and having fabricated them, to use them for permanently fixing them in the structures which were to be erected as per the design under the works contracts.
9. Now coming to the case law relied upon by the Department, it is observed that many of them are pre Mahindra and Mahindra case. The adjudication in the case of Commissioner of Excise, Bangalore vs. Osna Chemical Pvt. Ltd. (supra), no doubt it is held that the raw-material "Bitumin" therein when is processed by being boiled and being blown with air, thereafter, the same is only for improving the quality of the product. Hence, cannot be amount to manufacture. To our opinion, the said adjudication is not applicable to the facts of the present case because in the present case no doubt the raw-material in question has undergone the simple process of cutting of angles, punching of angles, notching, bending, drilling etc. but the fact remains is that those activities are being carried out with the sole objective of those raw-material to be customised into a particular shape and size, even in terms of the location of hole/punch there upon, to suite the design, specification of the final product that is the transmission tower in hand. It has well been clarified by various judgments as discussed above i.e. Mahindra and Mahindra (supra) and Brakes India Limited vs. Superintendent of Central Excise and Others (supra) that the activity bringing a change to a raw material, howsoever simple as that of cutting or drilling, that too such a shape, size or structure that it is no more in the original form of its raw-material and cannot be used for any other purpose except for the final product for which it has been so customised.
10. The another peculiar fact of the present case which distinguishes it from the case law as relied upon by the Department is that the final product here is a transmission tower, which is to be removed from the premises of L & T in CKD condition only i.e. all such parts as processed by the appellants herein shall be cleared from L & T premises in unassembled form, though together, to be finally assembled at the site of the client in the form of a transmission tower. Thus, it become clear that the processes undertaken by the appellants on the raw-material provided to them by L & T in L & T's own premises are nothing but the processes to convert the said raw-material into a customized part of the whole transmission tower and as such, to our opinion, the activity of the appellants is incidental/ancillary to the completion of the manufactured product and thus, falls under Section 2f(i) of Central Excise Act, 1944. Brakes India Ltd. case (supra) is again relied upon. At this stage clause 5 of Section 65(19) of Finance Act, 1994 defining BAS is perused. It is clear that it includes the activity which is production or processing of the goods for or on behalf of the client but does not include any activity that amounts to manufacture of excisable goods.
11. In view of entire above discussion, we are of the view that the activities of the appellants are the activities of manufacture. Resultantly, the findings of order under challenge holding the activities of the appellants to be the business auxiliary activities and confirming the demands in response thereof is held to be a wrong observation. The orders under challenge are set aside to that extent.
12. Now coming to another aspect of adjudication it is observed and held as:
The exemption Notification No. 6/2005 prescribes the exemption to taxable services upto the aggregate value of Rs. 8,00,000/- during the year 2007-08 and Rs. 10,00,000/- w.e.f. 1st April 2008 to the service provider. Vide the Order-in-Original, it was observed that no evidence has been produced by the appellants about the aggregate value of taxable services. Resultantly, the benefit of this Notification was denied and the same findings are confirmed by Commissioner (Appeals). We are of the opinion that it is an admitted fact that M/s. L & T had been performing further manufacturing activities on the semi finished goods processed by the appellants and have been clearing those goods on payment of duty as well as under the exemption Notification without payment of duty. The appellants have failed to provide the gross aggregate value received by them from M/s. L & T even before the first Appellate Authority. Resultantly, the authority has rightly denied the benefit of exemption Notification No. 06/05 : MANU/EXCR/0009/2005 to the appellants. With respect to granting the benefit of exemption Notification No. 08/2005-ST dated 1st March, 2005 also we do not find any infirmity in the impugned order. The findings thereof are upheld qua both these Notifications.
13. As a result of entire above discussion, we partly allow the appeal holding the impugned activity to be the one as that of manufacture. Benefit of Notification No. 08/2005 of 1st March, 2005, is confirmed, however, denying the benefit of Notification No. 06/2005 dated 01.03.2005. Consequential benefits to follow.
[Pronounced in the open Court on 23.07.2018]
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