Gujarat Insecticides Ltd VERSUS C.C.E. & S.T.-Surat-ii

Service Tax Appeal No. 171 of 2012

(Arising out of OIO-01/ST/SURAT/2012 dated 16/01/2012 passed by Commissioner of

Central Excise, CUSTOMS (Adjudication)-SURAT-II)

 

Gujarat Insecticides Ltd

VERSUS

C.C.E. & S.T.-Surat-ii

 

APPEARANCE:

Shri Dhaval Shah, Advocate for the Appellant

Shri Prabhat k Rameshwaram, Additional Commissioner (AR) for the Respondent

CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR

HON’BLE MEMBER (TECHNICAL), MR. RAJU

Final Order No. A/ 10212 /2023

DATE OF HEARING: 06.10.2022

DATE OF DECISION: 06.02.2023

RAMESH NAIR

The brief facts of the case are that the appellant M/s. Gujarat

Insecticides Ltd. (GIL) are holding Central Excise Registration and are

engaged in the manufacture of excisable goods viz. insecticides, pesticides,

weedicides falling under chapter 28,29 & 38 of the first schedule of Central

Excise Tariff Act, 1985. They are also holding certificate of registration form

ST-2 for services (i) Goods Transport Operator and (ii) Business Auxiliary

Services under section 69 of Finance Act, 1994. During the course of audit of

appellant it was noticed by audit party that they had provided their plant A,

B & D for exclusive use for the manufacture of goods on the input and

packing material supplied by M/s. Gharda Chemicals Ltd (GCL) & had

recovered an amount of Rs 10,91,88,495/- during the period from June

2005 – March 2006 (400 Lacs being the charges for Plant A/D & Plant B, +

Rs. 692 Lacs towards reimbursement of expenses being the fixed 

expenses for plant A, B & D & + Rs. 418 Lacs being the revenue expenses

incurred for plant A/ D and B). The case of the department is that by

providing the plant exclusively for use by M/s. Gharda Chemicals Ltd the

appellant have provided the services of Management, Maintenance or Repair

and the same is liable to service tax under section 65 (105) (zzg) of the

Finance Act, 1994. Accordingly, the appellant was issued show cause notice

and the same was adjudicated by the Adjudicating Authority whereby a

demand of Service Tax amounting to Rs 3,02,70,647/- has been confirmed

along with interest and penalties. Being aggrieved by the impugned OIO No.

01/ST/ SURAT /2012 dated 16.01.2012 the appellant filed the present

appeal.

2. Shri Dhaval Shah, Learned counsel appearing on behalf of the appellant

submits that the appellant are basically engaged in production and clearance

of finished excisable goods. The said production and clearance of goods have

been carried on under the authority and subject to terms and condition of

Central Excise Registration Certificate. The appellant entered into an

agreement with one M/s. GCL as per which the appellant was required to

produce desired excisable goods on behalf of the said M/s. GCL. The

appellant have carried out manufacturing of goods in terms of section 2(f)

of CETA on the inputs and packing materials supplied free of charge by

GCL. The appellant have used their specified plant, equipment, machinery,

labour, Supervisors, water, electricity and certain consumable and stores in

small quantum for production of excisable goods for and on behalf of GCL. It

is his submission that the said activity was undertaken under the provision

of Rule 4 (5) (a) of Cenvat Credit Rules, 2004. Accordingly, the activity

clearly of manufacture cannot be construed as service for charging service

tax. Even if by stretch of imagination the activity if classified the same will

fall under Business Auxiliary Service under sub head of ‘Production or

Processing on behalf of the client’. In such case, demand under 

Management, Maintenance or Repair service cannot be confirmed. The

activity of production or processing under business auxiliary service is

exempted under notification no. 8/2005- ST dated 01.03.2005 as in this

case the recipient of job work goods is liable to pay excise duty. For this

reason also the demand under management maintenance & repair service

is not maintainable.

3. On the other hand, Shri Prabhat K Rameshwaram, Learned Additional

Commissioner (AR) appearing on behalf of the Respondent reiterates the

finding of the impugned order.

4. We have carefully considered the submission made by both sides and

perused the records. We find that the demand was confirmed under the

head of Management, Maintenance & Repair Service as per section 65(105)

(zzg) of the Finance Act, 1994. The Management, Maintenance & Repair

service is defined under section 65 (64) of the Finance Act, 1994 which is

reproduced below:-

“(64) “Management, maintenance or repair” means any service provided

by —

(i) Any person under a contract or an agreement; or

(ii) A manufacturer or any person authorised by him, in relation to,

(a) Management of properties, whether immovable or not;

(b) Maintenance or repair of properties, whether immovable or not; or

(c) Maintenance or repair including reconditioning or restoration, or

servicing of any goods, excluding a motor vehicle

Explanation.—For the removal of doubts, it is hereby declared that for the

purposes of this clause-

(a) “goods” includes computer software;

(b) “properties” includes information technology software”

From the plain reading of the above definition of Management, Maintenance

& Repair Service the main condition is that the Management, Maintenance

& Repair Service of the plant should belong to the service recipient and not 

to the service provider. In the present case the order impugned has held the

appellant as service provider and Gharda Chemicals Ltd as service recipient.

It is also not disputed that it is the service recipient M/s GCL is paying for

the use of manufacturing facilities of the appellant for manufacture of the

excisable goods of M/s Gharda chemicals. In this fact the appellant using

their own plant machinery equipment that too for production of excisable

goods on behalf of M/s Gharda chemical Ltd. In this undisputed fact by any

stretch the activities of the appellant cannot be classified under

Management, Maintenance & Repair Service. Moreover, the activity per se

cannot be treated as service itself for the reason that the activities carried

out by the appellant is purely of manufacture of excisable goods with the

inputs and packaging material supplied by the GCL and the said

manufacturing was done on job work basis on behalf of M/s GCL.

4.1 The principle manufacturer M/s GCL has supplied the input and

packing material to the appellant under Rule 4(5)(a) of Cenvat Credit Rules,

2004. It is further established that the activities carried out by the

appellant is of manufacture of excisable goods on job work basis. The

principle manufacturer M/s. GCL is under legal obligation to discharge the

excise duty on the job work goods received by them from the appellant. The

show cause notice has not alleged that the principle manufacture has not

cleared their final product without payment of excise duty. Accordingly the

activities at the most can be classified under sub clause of production or

processing on behalf of the client under business auxiliary service.

4.2 Firstly, when the principle manufacturer and appellant as job

worker complied with the conditions prescribed under Notification No.

08/2005- ST even if it is treated as business auxiliary service the same is

exempted under the said notification, Secondly, when the demand was

raised under Management, Maintenance & Repair Service and as per our

opinion it is not the correct classification the demand is not sustainable on 

this ground itself. The adjudicating authority put heavy emphasis on the fact

that the entire plant was used exclusively for production of goods of GCL.

Therefore, the service is classified under Management, Maintenance & Repair

Service. As we already observed above that since the plant machinery

equipment used for the purpose of production belongs to the appellant, the

service is not classified under Management, Maintenance & Repair Service.

Further, the activities carried out by the appellant are undoubtedly

production of goods on job work basis on behalf of GCL. This position will not

alter irrespective of fact that whether the plant, machinery &equipment are

used exclusively for GCL or partly for GCL or partly for others, therefore, on

this basis the activity cannot be classified as Management, Maintenance &

Repair Service.

4.3 We further find that the activity of the appellant is indeed manufacture

of excisable goods in terms of section 2(f) of CEA, 1944. As per the

definition of business auxiliary service manufacture of excisable goods in

terms of section 2(f) of the Central Excise Act, 1944 is clearly excluded from

the definition of business auxiliary service. For this reason also, the demand

of service tax is not sustainable.

5. As per our above discussion and finding the impugned order as a whole

is not sustainable, hence we set aside the impugned order. The appeal is

allowed with consequential relief.

(Pronounced in the open court on 06.02.2023)

RAMESH NAIR

MEMBER(JUDICIAL)

RAJU

MEMBER (TECHNICAL)