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Hardev Singh and Ors. Vs. C.C.E. & S.T., Indore - (Customs, Excise and Service Tax Appellate Tribunal) (23 Jul 2018)

When adopting a particular process, if a transformation takes place, which makes the changes in the character and usage of the product, the process would amount to "manufacture"


Service Tax

The Appellants herein are the house labour contractors of Larsen & Toubro Ltd. (L & T) 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, show cause notices were served upon them.

The demand was confirmed 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.

In Brakes India Limited vs. Superintendent of Central Excise and Others, 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. 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".

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, 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, 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. 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 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). It is an admitted fact that, L & T had been performing further manufacturing activities on the semi finished goods processed by the Appellants and has 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 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. Appeal partly allowed.

Relevant : Brakes India Limited vs. Superintendent of Central Excise and Others MANU/SC/1609/1997: 1997 (10) SCC 717


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