OIO No. 16/STC-AHD/ADC/(MKR)/2010
Page 1 of 10
BRIEF FACTS OF THE CASE
M/s Ginza Machinery Manufacturing Company, Plot No.
1106/7, F-Road , GIDC , Vatva , Ahmedabad, were engaged in providing job
work for their clients and receiving / collecting job charges on the same.
Inquiry conducted revealed that they have not obtained ST registration and
not paying Service Tax and not filing ST-3 returns. The said services fall
under the head of Business Auxiliary as introduced vide Notification No.
7/2003 Dated 20.06.2003 and scope of the said service was expanded to
include activities relating to procurement of inputs, production of goods not
amounting to manufacture or provisions of services on behalf of a client,
vide Finance Bill (No.2), 2004 enacted on 10.09.2004.
2.
As per the provisions of clause (19) of Section 65 of the Finance
Act, 1994 the term ‘Business Auxiliary” has been defined as under:“business auxiliary” service means any service in relation to, (i)
promotion or marketing or sale of goods produced or provided by or
belonging to the client; or
(ii)
promotion or marketing of service provided by the client; or
(iii)
any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
(v)
production or processing of goods for, or on behalf of, the client; or
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clauses
(i) to (vi), such as billing, issue or collection or recovery of cheques,
payments, maintenance
of account
and remittance
, inventory
management, evaluation or development of prospective customer or
vendor, public relation services, management or supervision, and
includes services as a commission agent, but does not include any
information technology service and any activity that amounts to
‘manufacture’ within the meaning of clause (f) of section 2 of the
central Excise Act, 1944.
3.
Further the Finance Bill (No.2), 2004 was enacted on 10.09.2004
imposing service tax on new services. With the enactment of the Finance
Bill, Business
Auxiliary
Service was to include activities relating to
OIO No. 16/STC-AHD/ADC/(MKR)/2010
Page 2 of 10
procurement of inputs, production of goods (not amounting to manufacture)
or provision of services on behalf of a client. Further Notification Number
8/2005 ST dated 01/03/2005 regarding exemption to job workers for
production of goods on behalf of the client clarified as under:
For the purposes of this notification,(i) the expression “production of goods” means working upon raw materials
or semi-finished goods so as to complete part or whole of production,
subject to the condition that such production does not amount to
“manufacture” within the meaning of clause (f) of section 2 of the Central
Excise Act, 1944 (1 of 1944);
(ii) “appropriate duty of excise” shall not include ‘Nil’ rate of duty or duty of
excise wholly exempt.
4.
As per the above it appeared that the service provided by
M/s Ginza Machinery Manufacturing Company falls under Business Auxiliary
Service and were liable to pay service tax at the applicable rate w.e.f.
10/09/2004.
Therefore,
summon
bearing
F.No.STC/04-20/Prev.V/77-08
dated 31/10/2007 was issued to the said service provider for detailed inquiry
and investigation in the matter. M/s Ginza Machinery Manufacturing
Company vide their letter dated 06/11/2007 furnished copies of Invoices
issued by them for the period 2003-04 to 2006-07 along with year wise
receipt of job charges. Further, the Manager of the said service provider Shri
Mangaldas Hiralal Panchal appeared on 06.11.2007 and his statement was
also recorded on 06.11.2007 under Section 14 of the Central Excise Act,
1944 made applicable to Service Tax matters vide Section 83 of the Finance
Act, 1994. In his statement dated 06.11.2007 Shri Mangaldas Hiralal
Panchal
stated
that
he
was
the
Manager
of
M/s
Ginza
Machinery
Manufacturing Company, Ahmedabad, and looking after all the day to day
work of the firm relating to administration / marketing work including
taxation / government work.
5.
During the course of recording of the statement of Shri
Mangaldas Hiralal Panchal, Manager of the said unit, it was revealed that the
said service provider was engaged in the manufacturing of different types /
models of Industrial Sewing machine and parts thereof and were also doing
job work on parts of Sewing Machines received from their clients. Shri
Mangaldas
Hiralal
Panchal,
Manager,
in
the
said
statement
dated
06/11/2007 described the exact nature of job work that they were doing
OIO No. 16/STC-AHD/ADC/(MKR)/2010
Page 3 of 10
CNC (Computerized Numetric Control Machining) work i.e Sewing machine
bottom body & Top band-drilling, Taping, Boring & surfacing on the Cast
Industrial Castings received from their clients, and after doing the said job
work on the parts received the same were sent back to their client. Further
he stated that they were doing the said job work for M/s Gabbar Engineering
Company, Vatva, Ahmedabad, and that they were collecting job charges for
the same amounting to Rs.4,000/- to Rs.4,200/- per unit / piece as per the
Job charges bills raised by them and that they were not registered with the
service tax department and were not paying service tax; that they were
aware that there was NIL rate of Central Excise Duty as per Chapter
8452.90.90 of Central Excise Tariff Act, 1985, on the said Industrial Sewing
Machines; that the said job work of M/s Gabbar Engineering Company,
Vatva, Ahmedabad, was being carried out for the last 4 years and produced
copies of the said Invoices.
6.
As per the Invoices of the job charges received / realized by
them he confirmed the year wise job charges collected as under:
Sr.
1
2
3
4
5
7.
Financial Year
2003-04
2004-05
2005-06
2006-07
2007-08 (up
OCT-2007)
TOTAL
to
Job charges
collected in
Rupees.
34,46,400/38,01,000/34,94,400/43,05,000/24,99,000/1,75,45,800/-
A Statement dated 14/12/2007 of Shri Mangaldas Hiralal Panchal
Partner of M/s Gabbar Engineering Company was recorded wherein he
confirmed that they were sending the C.I.Casting parts directly to their job
worker namely M/s Ginza Machinery Manufacturing Company ,Vatva,
Ahmedabad, for job work under Challan; that they were sending the said CI
Castings to the said job worker for doing CNC Work
i.e. Work of Drilling,
Tapping, Boring and surfacing on the C.I Castings parts of sewing Machine.
Further he stated that after the receipt of the semi finished sewing machine
from M/s Ginza Machinery Manufacturing Company they were doing colour /
printing work, assembly work, testing and packing after which the now
finished Industrial sewing machines were ready to be dispatched / sold from
their factory premises to their customers under sale invoices; that they were
aware that they were availing exemption on their final product under Central
OIO No. 16/STC-AHD/ADC/(MKR)/2010
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Excise Notification No. 08/2003 dated 01/03/2003 and 06/2002 CE dated
01/03/2002 and accordingly not paying any Central Excise duty on their final
product i.e. Industrial Sewing machine falling under CETH 8452 90 90; that
for the said job work they have paid Rs.1,75,45,800/- for the period from
2003-04 to 2007-08 (up to Oct-2007) as per the below table:
Sr
1
2
3
4
5
8.
Financial Year
Job charges
collected in
Rupees.
34,46,400/38,01,000/34,94,400/43,05,000/24,99,000/-
2003-04
2004-05
2005-06
2006-07
2007-08 (up to
OCT-2007)
TOTAL
1,75,45,800/-
As per the above it appeared that M/s Ginza Machinery
Manufacturing Company were liable to pay service tax on job charges so
collected from its clients with effect from 10/09/2004 at the applicable rate
details of which were worked out in the below table:
Sr.
No
.
1.
2.
3.
4.
Period
2004-05
10.09.04
to
31.03.05
TOTAL
20052006
April,
2005 to
March,
2006
TOTAL
20062007
01.04.06
to
17.04.06
18.04.06
to
31.03.07
TOTAL
20072008
01.04.07
to
10.05.07
11.05.07
to
31.10.07
TOTAL
GRAND
TOTAL
Actual Amount
Taxable Value
realized
Cum Service
Tax Value
Rate
of
Servi
ce
Tax
Service Tax
Payable
22,47,000/-
22,47,000/-
20,39,020/-
10.20
%
2,07,980/-
22,47,000/-
22,47,000/-
20,39,020/-
34,94,400/-
34,94,400/-
31,70,962/-
34,94,400/-
34,94,400/-
31,70,962/-
2,73,000/-
2,73,000/-
2,47,731/-
10.20
%
25,269/-
40,32,000/-
40,32,000/-
35,92,302/-
12.24
%
4,39,698/-
43,05,000/-
43,05,000/-
38,40,033/-
3,15,000/-
3,15,000/-
2,80,649/-
12.24
%
34,351/-
21,84,000/-
21,84,000/-
19,43,752/-
12.36
%
2,40,248/-
24,99,000/-
24,99,000/-
22,24,401/-
2,74,599/-
1,25,45,400/-
1,25,45,400/-
1,12,74,416/-
12,70,984/-
2,07,980/-
10.20
%
3,23,438/-
3,23,438/-
4,64,967/-
OIO No. 16/STC-AHD/ADC/(MKR)/2010
9.
Page 5 of 10
As per the above table, the said service provider had provided
service and collected service charge to the tune of Rs.1,25,45,400/- during
the period from 10.09.2004 to 31.12.2007 and the taxable amount works
out to Rs.12,70,984/- as per the Invoices raised by M/s Ginza Machinery
Manufacturing Company to M/s Gabbar Engineering Company, Ahmedabad.
10.
M/s Ginza Machinery Manufacturing Company, situated at Plot
No. 1106/7, F-Road, GIDC, Vatva, Ahmedabad, provided the services under
the category of ‘Business Auxiliary Service’ which was a taxable services as
defined under clause (19) of Section 65 of the Finance Act 1994 and the said
service provider, were not registered with the service tax department, and
were indulging in evasion of Service Tax by not paying Service Tax on the
amount received by them for providing taxable services for the period from
10.09.2004 to 31.10.2007.
Thus, from the facts of the case, it appeared
that the said service provider was guilty of willful suppression of the actual
liability of Service Tax with a view to evade payment of Service Tax,
therefore, extended period of five years was applicable in this case for the
purpose of issuing notice for non payment of Service Tax under Section
73(1) of the Finance Act, 1994, as amended from time to time.
11.
M/s
Ginza
Machinery
Manufacturing
Company
were
not
registered with the service tax department and were not filing ST-3 returns.
Thus, from the facts of the case it appeared that the said service provider
was guilty of willful suppression of the actual liability of Service Tax with a
view to evade payment of Service Tax, therefore, extended period of five
years was applicable in this case for the purpose of issuing notice for non
payment of Service Tax under proviso to Section 73(1) of the Finance Act,
1994, as amended from time to time.
12.
Thus, the said amount as discussed in the foregoing paras has
been received by the said service provider during the period from
10.09.2004 to 31.12.2007 for providing Business Auxiliary Service as
defined under Section 65 of the Finance Act, 1994 on which appropriate
service tax had not been paid by the said service provider which worked out
to Rs.12,70,984/-.
13.
In view of the discussion above, it appeared that M/s. Ginza
Machinery Manufacturing Company situated at Plot No. 1106/7, F-Road,
GIDC, Vatva, Ahmedabad ;
OIO No. 16/STC-AHD/ADC/(MKR)/2010
i)
Page 6 of 10
were engaged in providing Business Auxiliary Service to M/s Gabbar
Engineering Company and have not paid any Service Tax for the
period from 10.09.2004 to 31.10.2007 and also not filed any ST-3
returns during the said period as defined under Section 70 of the
Finance Act, 1994.
ii)
have recovered / collected job charges for providing the said Business
Auxiliary Service and issued bills for the same.
iii)
have collected amount of Rs.1,25,45,400/- for providing Business
Auxiliary Service
during the period from 10.09.2004 to 31.10.2007
and not paid service tax amounting to Rs.12,70,984/- as detailed
above.
14.
Therefore a show cause notice bearing No. STC-89/O&A/SCN/D-
III/JC/GMMC/08
25.03.2009
was
issued
to
the
service
provider
for
contravention of the provisions of Section 68 of the Finance Act read with
Rule 6 of the Service Tax Rules, 1994 for recovery of Service Tax amounting
to Rs.12,70,984/-, Section 70 read with Rule 7 in as much as they failed to
file prescribed quarter / half yearly ST 3 returns and Interest under Section
75 of the Act. The said show cause notice also proposed for imposition of
penalty under Section 76, 77 & 78 of the Act for failure to make payment of
Service Tax and concealing the value of taxable services provided by the
assessee from the department.
15.
The above mentioned show cause notice was decided by Joint
Commissioner, Service Tax, Ahmedabad vide O-I-O No. STC-93/JC/2010
dated 31.03.2010, under which Service Tax amounting to Rs.12,70,984/was confirmed under Section 73 of the Act, along with interest at the
prescribed rate for not paying service tax under Section 75 of the Act,
Penalty of Rs.200/- per day or 2% of the service tax amount per month,
whichever is higher under Section 76 of the Act, Penalty of Rs.6,000/- under
Section 77 of the Act for failure to file prescribed service tax returns &
Penalty of Rs.12,70,984/- under Section 78 of the Act for failure to pay
service tax amounting to Rs.12,70,984/- were imposed on the assessee.
16.
Being aggrieved by the said O-I-O, the service provider filed an
appeal before the Commissioner (Appeal-IV), Central Excise, Ahmedabad
against the above mentioned Order-In-Original. The Commissioner (Appeal IV), Central Excise, Ahmedabad decided the appeal vide Order-In-Appeal
OIO No. 16/STC-AHD/ADC/(MKR)/2010
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No. 222/2010(STC)MM/Commr.(A)/Ahd. dated 10.08.2010 and set
aside the impugned order passed by the adjudicating authority and allowed
the appeal filed by the appellants.
The Commissioner (Appeal – IV) also directed the Joint /
Additional Commissioner to re examine the matter whether the appellant is
duly following the Central Excise procedure, unless exempted. The relevant
para of the Commissioner (Appeal)’s order is reproduced below :
“14. The period of dispute is 2004 to October 2007. Till
10.09.2004, job work was outside the purview of BAS. From 10.09.2004 to
date, even though job work was included in the definition of BAS, the
activity of manufacture has been outside the purview of BAS. The idea
appears to be to keep taxation of goods exclusive from taxation of service.
However, I find that the appellant have taken the plea of their activity being
manufacture but no where they have submitted any document to prove that
they are following the due processes of the Central Excise Law. Therefore, I
direct the JC / ADC to re-examine the matter in the above terms after
verifying that the appellant is duly following the Central Excise procedure,
unless exempted. If it is so, the demand of service tax on their job work
activity will not survive.”
DEFENSE REPLY
17.
The assessee filed their defence reply vide their letter dated
27.11.2010, wherein they submitted that Commissioner (Appeals-IV) has
allowed their appeal against OIO No. STC-93/HC/2010 dated 31.03.2010
and has set aside the demand of service tax and penalty on activities
conducted in their premises as a job worker, ;that however Commissioner
(Appeals-IV) has remanded the matter to the original adjudicating authority
for verifying the limited aspect that proper procedure mentioned under the
Central Excise law has been followed or not.
17.1
They further submitted that the principal has always cleared the
goods i.e forged or casted articles on Challans from their premises, ;that
after the job work, they have also cleared the parts of industrial sewing
machines on Challans along with their invoice for job charges, ;that
accordingly, the goods have been cleared from the premises of principal and
OIO No. 16/STC-AHD/ADC/(MKR)/2010
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job worker on Challans only, ;that accordingly the procedure required for
clearance of any goods for job work is duly complied in the present case.
17.2
They further submitted that both industrial sewing machines are
fully exempted from Central Excise duty and parts of industrial sewing
machines attracts NIL rate of Central Excise duty, ;that accordingly both the
end products are exempted from Central Excise duty, ;that hence, the
principal as well as the job worker were not required to register themselves
and follow any conditions imposed under the Central Excise Law.
17.3
Lastly, they submitted that even though they are not required to
follow any procedure for the job work under the Central Excise Law, the
same has been complied with by them and their principal for their own
records as well as for complying with the requirements of other laws, ;that
accordingly the show cause notice should be dropped unconditionally in the
interest of justice.
PERSONAL HEARING
18.
Vide this office letter dated 12.11.2010, the assessee was
requested to appear for personal hearing on 24.11.2010. Shri Nirav Shah,
Advocate and Shri Mangaldas Hiralal Panchal, Manager appeared for
personal hearing and submitted that their product is exempted (Chapter
Head 8452.9090) and the final product of the principal is also exempted.
They further submitted that they are following procedure as far as
movement on Challan is concerned.
DISCUSSION & FINDINGS
19.
notice,
I have carefully gone through the facts of the case, show cause
records
available,
defence
replies
filed
by
the
assessee,
Commissioner (Appeals –IV) O-I-A and the submissions made by the
assessee in personal hearing held in this case.
20.
At the outset, I observe that the Commissioner (Appeals) has
already allowed the appeal. From perusal of her order, it is also clear that
she has taken a view regarding nature of activities carried by the assessee.
After appreciation of the assessee’s plea, demonstrating the diagram of the
Sewing Machine, Raw Forging and Raw Forging CNC Machining Parts and
OIO No. 16/STC-AHD/ADC/(MKR)/2010
Page 9 of 10
analyzing the classification of Sewing Machine & its parts, raw forging, she
has come to the conclusion that activity being carried out by the assessee is
manufacturing activity and hence, the same is outside the purview of
Business Auxiliary Service. But instead of allowing the appeal in toto, she
has put one rider in the order by adding re examination of following of
Central Excise procedures by the assessee, by the adjudicating authority.
21.
The assessee vide his reply dated 27th November 2010, has
submitted that their appeal has already been allowed by the Commissioner
(Appeals) and the remand is only for verifying the limited aspect that proper
procedure mentioned under the Central Excise Law has been followed or not.
They further submitted that the movement of the goods i.e forged or casted
articles from the principal, has always been on Challans. Similarly, after the
job work they have also cleared the parts of the Industrial Sewing Machine
on Challan alongwith Invoice. Thus, required procedures for clearance of
goods for job work have been duly complied with in their case. They further
submitted that Industrial Sewing Machine are fully exempted from Central
Excise duty and parts of Industrial Sewing Machine attracts ‘NIL’ rate of
duty. Accordingly, both the end products are exempt from Central Excise
duty. Hence, the principal as well as job worker are not required to be
registered themselves and follow any conditions imposed under the Central
Excise Law. Lastly, they added that even though they are not required to
follow any procedure for the job work under the Central Excise Law, they
have complied with procedures.
22.
From perusal of the show cause notice, I observe that the show
cause notice was issued to the assessee to demand Service Tax under
Business Auxiliary Service treating their activities qualified under Business
Auxiliary Service. When the activity carried out by the assessee has been
found / concluded as manufacture by the Commissioner (Appeals), the very
basis of the show cause notice falls. Accordingly, she has also allowed the
appeal of the assessee. Whether the assessee is following Central Excise
procedure or not is, prima facie, out of the purview of the show cause
notice. Secondly, my jurisdiction is Service Tax, and not Central Excise.
Being purely Service Tax officer, it would not be proper on my part to give
certificate to the assessee that whether they are following Central Excise
procedures or not.
OIO No. 16/STC-AHD/ADC/(MKR)/2010
23.
Page 10 of 10
With due respect, I would like to submit that no action is
required to be taken by the adjudicating authority in this case in de-novo
adjudication. The moment the activities carried out by the assessee, which
were alleged taxable under Service Tax in the show cause notice and
confirmed by the then adjudicating authority, were found manufacture by
the Commissioner (Appeals), the show cause notice looses its ground and
demand fails on merit. Hence, whether the assessee is following Central
Excise procedures or not is immaterial as far as demand of Service Tax is
concerned. Accordingly, I find that neither I can confirm the demand nor can
drop the demand as the appeal has already been allowed by the
Commissioner (Appeals). The so called verification of Central Excise
procedure exercise can not modify the finality of the order of the
Commissioner (Appeals) as per Judicial discipline.
24.
In view of the above discussion & findings, I pass the following
order :- : O R D E R :I come to a conclusion that no action is required to be taken by
the adjudicating authority in this case in the de-novo adjudication.
The matter is disposed of accordingly.
[Dr. Manoj Kumar Rajak]
Additional Commissioner
Service Tax : Ahmedabad
F.No. STC-89/O&A/SCN/D-III/JC/GMMC/08
Date : 12/01/2011
By R.P.A.D
To
M/s. Ginza Machinery Manufacturing Company
Plot No. 1106/7,
F-Road , GIDC ,
Vatva , Ahmedabad
Copy to:
(1)
(2)
(3)
(4)
(5)
The Commissioner, Service Tax, Ahmedabad. (Attention Review Cell).
The Assistant Commissioner (Preventive), Service Tax, Ahmedabad.
(Attention: Supdt. Preventive Group-V).
The Assistant Commissioner, Service Tax, Division-III, Ahmedabad for
information and necessary follow up action.
The Superintendent, Range-XIII, Division-III, Service Tax, A’bad, with extra
copy of OIO to be delivered to the assessee and submit the
acknowledgement receipt to this office.
Guard File / Office Copy