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September 2011

Business Auxiliary service (BAS) — Process of cutting paper into sheets — Assessee’s submission that activity not manufacture/production as per section 2(f) of the Central Excise Act, 1944 — Held: Processing of goods integral part of production — Intention of legislation to levy service tax on services in relation to products — Confirmed. Penalty — Issue involved is interpretation of statute — Fit case to invoke section 80 of the Finance Act, 1994 to waive penalty.

By Puloma Dalal
Jayesh Gogri
Chartered Accountants
Reading Time 2 mins
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(2011) 23 STR 167 (Tri.-Del.) — Orient Packaging Ltd. v. Commissioner of Central Ex., Meerut-I.

Business Auxiliary service (BAS) — Process of cutting paper into sheets — Assessee’s submission that activity not manufacture/production as per sec-tion 2(f) of the Central Excise Act, 1944 — Held: Processing of goods integral part of production — Intention of legislation to levy service tax on services in relation to products — Confirmed.

Penalty — Issue involved is interpretation of statute — Fit case to invoke section 80 of the Finance Act, 1994 to waive penalty.


Facts:

The demand of service tax along with penalty was confirmed against the appellants who were undertaking the process of cutting paper into sheets on the ground that the activity of production or processing goods on behalf of their client during the relevant period 10-9-2004 to 15-6-2005 came under the scope of business auxiliary service. According to the appellants the process of cutting of paper into sheets neither amounted to manufacture, nor production. The appellants argued that the said activity was covered under BAS only with effect from 16-6-2005 and hence, the appellants were not liable to pay service tax prior to that period. Also, the case being of interpretation of taxability, no penalties were warranted. The appellants relied on the decision of Commissioner of Income Tax, Kerala v. Tara Agencies, 2007 (214) ELT 491 SC. The respondents on the other hand drew attention to the definition of BAS and submitted that the activity undertaken by the appellants did not amount to manufacture; but cutting paper into sheets was ‘production’ only and hence, the appellants were liable to pay service tax.

Held:

The Tribunal observed that the process undertaken by the appellants was an integral part of production. Keeping in consideration the intention of the Legislature while inserting the word ‘production’ initially in section 65(19) to levy service tax on the activity of production/processing the demand of tax was confirmed. The issue involved, being interpretation of the statute, penalty was waived by invoking section 80 of the Finance Act.

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