CESTAT Kolkata Rules Packaging Services as Manufacturing, Exempts from Service Tax [Read Order]

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Kolkata has ruled that the activity of packaging bulk goods into retail packs qualifies as "manufacture" under the Central Excise Act, 1944, and is not liable for service tax. The tribunal held that such job work is covered under the negative list of services under Section 66D(f) of the Finance Act, 1994, thereby exempting it from service tax liability. The tribunal set aside the tax demand raised by the Principal Commissioner, CGST & Central Excise, Guwahati, and ruled in favor of the appellants.

The case involved Pradip Das, a contractor engaged by Emami Limited, a company manufacturing ayurvedic and cosmetic products. Emami Limited had entered into job work agreements with various contractors, including Pradip Das, for packaging bulk goods into retail packs within the company’s factory premises. The Revenue Department initiated proceedings based on intelligence reports suggesting that these contractors were engaged in manpower supply services rather than job work.

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Acting on this information, tax authorities conducted a search at the premises of one of the contractors, recorded statements from various parties, and issued a show cause notice on October 16, 2019. The notice demanded Rs.4.25 crore in service tax from Emami Limited under the reverse charge mechanism and Rs.19.14 lakh from Pradip Das under the forward charge mechanism, along with interest and penalties. The Revenue contended that the contractors were merely supplying manpower for packaging services, which should be classified under manpower supply services and subjected to service tax. The Principal Commissioner, CGST & Central Excise, Guwahati, confirmed the tax demand through an order dated March 23, 2022.

The CESTAT Kolkata reviewed the case and ruled in favor of Emami Limited and Pradip Das, stating that the packaging activity qualifies as manufacturing under Section 2(f) of the Central Excise Act, 1944. The tribunal observed that Chapter Notes 5 and 6 of Chapters 30 and 33 of the Central Excise Tariff Act, 1985, specifically classify the process of packaging bulk goods into retail packs as manufacture. Since manufacturing processes are excluded from service tax under Section 66D(f) of the Finance Act, 1994, the tribunal held that no service tax could be levied on the job work contracts executed by the contractors.

The tribunal further noted that the Revenue relied on statements made by the contractors during the investigation to support its claim that the activities were manpower supply services. However, these statements were later retracted, and they were not subjected to cross-examination under Section 9D of the Central Excise Act. The tribunal ruled that such unverified statements could not be used as evidence to demand service tax.

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The tribunal also examined the agreements between Emami Limited and the contractors and found that the contractors were responsible for labor, quality control, and material losses. The contractors raised invoices on a per-piece basis, which indicated a job work contract rather than a manpower supply arrangement. The tribunal referred to CBIC, which clarifies the distinction between manpower supply services and job work services. Since the contractors exercised full control over labor and quality checks, the tribunal ruled that the contracts constituted job work, not manpower supply services.

The Revenue had invoked the extended limitation period to justify the tax demand, arguing that Emami Limited and Pradip Das had suppressed material facts. The tribunal rejected this argument, stating that the appellants had disclosed their activities and agreements to the tax authorities, and there was no deliberate misrepresentation. The tribunal cited the Supreme Court ruling in International Merchandising Co. LLC v. CST, New Delhi (2022), which held that extended limitation cannot be applied in cases involving interpretation of tax laws.

The ruling was delivered by Ashok Jindal(Judicial Member) and K Anapazhakan(Technical Member). The tribunal concluded that the packaging activity performed by Pradip Das and other contractors for Emami Limited qualifies as manufacturing and is not taxable under service tax provisions. The order set aside the entire tax demand and penalties imposed by the Principal Commissioner, CGST & Central Excise, Guwahati.

To Read the full text of the Order CLICK HERE

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