The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that processes such as cutting, deburring, and broaching performed on raw materials like “Forged Blastings” which creates “Gear 4th Platina” qualify as “manufacture” under Section 2(f) of the Central Excise Act, 1944.
Aurangabad Auto Engineering Pvt. Ltd., the appellant, is engaged in manufacturing motor vehicle parts and accessories. The appellant performed job work for Varroc Engineering Pvt. Ltd., processing raw “Forged Blastings” into “Gear 4th Platina” and claimed this activity constituted manufacturing. The appellant availed area-based exemptions under Notification No. 50/2003-CE.
The department alleged that the processes did not amount to manufacturing and issued a show cause notice demanding service tax of Rs. 81,61,363 for the period 2010-11 to 2013-14. The adjudicating authority upheld the demand, categorizing the activity as BAS and imposing penalties. Aggrieved, the appellant approached the CESTAT.
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The appellant’s counsel argued that the processes performed cutting, deburring, and broaching create a distinct product with a new name, character, and use, thus qualifying as manufacturing under Section 2(f) of the Central Excise Act.
The appellant’s counsel argued that under Section 66D of the Finance Act, manufacturing activities were exempt from service tax liability and pointed out that the department had prior knowledge of their processes making the extended period of limitation and suppression allegations baseless.
The revenue counsel countered that the processes did not result in a commercially distinct product and failed to qualify as manufacturing. They argued that the appellant had not provided sufficient evidence of the transformation and reiterated that the activity was taxable as BAS.
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The two-member bench comprising Dr. Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) observed that the processes imparted lasting changes to the raw material creating a distinct product identifiable as a “Gear.” The tribunal observed that photographs, physical samples, and procedural details supported the appellant’s claim.
The tribunal cited Prachi Industries v. Commissioner of Central Excise and Income Tax Officer v. Arihant Tiles and Marbles Pvt. Ltd. to confirm that the emergence of a new and distinct product meets the criteria for manufacturing.
The tribunal held that the processes performed by the appellant were incidental or ancillary to the completion of the manufactured product aligning with the statutory definition under Section 2(f). The tribunal set aside the service tax demand and ruled that the appellant’s activities constituted manufacturing which was exempt from service tax. The appeal was allowed.
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