The Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that compression of natural gas amount to manufacture under Central Excise Tariff Act and service tax is not leviable under Business Auxiliary Service(BAS).
Deep Industries Limited, the respondent provided service in relation to compression of natural gas at the premises of M/s. Gujarat Alkalies and Chemicals Ltd. The case of the department is that the activity of compression of natural gas was covered under the category of Business Auxiliary Service and the same is liable to service tax.
Shri Rajesh K Agarwal, Superintendent (AR) appearing on behalf of the Revenue Appellant submits that as per the activity carried out by the Respondent i.e. compression of natural gas does not amount to manufacture therefore it amounts to provision of service of business auxiliary service accordingly the same is taxable therefore the adjudicating authority has erred in dropping the show cause notice by holding that the activity of compression of natural gas amounts to manufacture.
Shri Punit Prajapati,Chartered Accountant appearing on behalf of the respondent take the support of the impugned order and submits that there is a clear chapter note 5 to chapter 27 which provides the compression of natural gas is amount to manufacture, therefore the Revenue’s appeal has no substance therefore, the same be dismissed.
The adjudicating authority has dropped the demand of service tax on the ground that the activity carried out by the appellant amounts to manufacture in terms of note 5 to Chapter 27 of Central Excise Tariff and observed that “In relation to natural gas falling under heading 2711, the process of compression of natural gas (even if it does not involve liquefaction), for the purpose of marketing it as Compressed Natural Gas (CNG), for use as a fuel or for any other purpose, shall amount to ‘manufacture’.”
It was evident that compression of natural gas is amount to manufacture and no condition was attached to the activity of compression therefore, the activity carried out by the appellant is indeed a manufacturing activity in terms of Section 2 (f) (ii) of Central Excise Act, 1944 read with chapter note 5 of Chapter 27 which mandates that the activity of compression of natural gas for the purpose of marketing it as Compressed Natural Gas(CNG) for use as a fuel or for any other purpose shall amount to manufacture.
A two-member bench comprising Mr Ramesh Nair, Member (Judicial) and Mr C L Mahar Member (Technical) held that “The Commissioner has rightly dropped the proceeding of the show cause notice, therefore, we do not find any infirmity in the impugned order. Hence the same is upheld, Revenue’s appeal is dismissed. Cross Objection also stands disposed of.”
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