The Kolkata Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the no service tax is payable on packaging activity as it is covered under the category of ‘manufacturing’.
The bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) has observed that the packaging activity undertaken by the appellant falls squarely within the ambit of the definition of ‘manufacture’ as defined under Section 2(f) of the Central Excise Act. Once the activity is held as amounting to ‘manufacture’, it is excluded from the purview of Service Tax as per the definition of ‘business auxiliary service’. Thus, we hold that the demand of Service Tax under the category of ‘business auxiliary service’ is not sustainable.
Table of Contents
Background
The appellant/assessee had been rendering the taxable service in the nature of ‘business auxiliary service’, but had not paid Service Tax on the same. It was found that the main job of the contractor was segregating the metal and slag, sizing and packaging as per the requirement of the service receiver, to make the product saleable and marketable.
The department is of the opinion that the appellant was involved in the production / processing of the goods on behalf of their clients and hence, fall within the definition of Part (v) of the definition of “business auxiliary service’.
A Show Cause Notice was issued to the appellant inter alia demanding Service Tax under the category of “business auxiliary service”.
The Notice was adjudicated by the Commissioner of Central Excise and Service Tax, Durgapur Commissionerate in which the Commissioner has confirmed the demand of Service Tax raised in the Notice, along with interest. He also imposed an equal amount of tax as penalty under Section 78 of the Finance Act, 1994 and penalties of Rs.10,000/- each under Section 77(1)(a) and 77(2).
Arguments
The appellant contended that they have undertaken the work of segregating the metal and slag, sizing and packaging, as per the requirement of their clients. The activity undertaken by them makes the goods saleable and marketable. The activity undertaken by them falls within the ambit of Section 2(f) of the Central Excise Act, 1944 and hence, the same amounts to ‘manufacture’. Since their activity amounts to manufacture, no Service Tax is payable on the said activity.
The appellant relied on Notification No. 08/2005-S.T. dated 01.03.2005 wherein the processing of raw materials or semi-finished goods supplied by the client are exempted from the purview of Service Tax when the goods, after processing, are used in the production of the final product, on which appropriate duty of excise is payable/paid. Accordingly, the appellant submits that they are eligible for the benefit of Notification No. 08/2005-S.T. also.
Read More: INPUT CREDIT AVAILABLE ON SERVICE TAX PAID ON INSURANCE PREMIUM FOR MEDICLAIM INSURANCE: CESTAT
Conclusion
The tribunal held that the appellant has been undertaking the activity of segregation of metal and slag, sizing and packaging, as per the requirement of their customers. It is observed that the activity of sizing and packaging is an essential process, which makes the final product is marketable.
The tribunal held that since the demand of Service Tax under the category of ‘business auxiliary service’ is not sustainable. Since the demand itself is not sustainable, the question of demanding interest and imposing penalties does not arise.
FAQs
Does Packaging Activity amounts to manufaturing?
The Kolkata Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the case of M/s. Deepak & Co. Versus Commissioner of Central Excise and Service Tax held that the no service tax is payable on packaging activity as it is covered under the category of ‘manufacturing’.
Case Details
Case Title: M/s. Deepak & Co. Versus Commissioner of Central Excise and Service Tax
Case No.: Service Tax Appeal No. 76153 of 2016
Date: 08.10.2024
Counsel For Appellant: S.P. Siddhanta
Counsel For Respondent: Prasenjit Das
