ITAT quashes Demand of 6% of Value of Exempted Service as Job Work is Incidental and Ancillary to Manufacturing and not Service [Read Order]

ITAT - value of exempted service as job work - Taxscan

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) quashed the demand of 6% of value of exempted service as job work is incidental and ancillary to manufacturing and not Service.

The Appellant, M/s. Mechasoft is a manufacturer of excisable goods and also a job worker. During the course of audit of the records of the appellant it was noticed that from July 2012 to December 2016 appellant had availed Cenvat credit against job work activity, which is an exempted service, and not maintained separate record for which as per Rule 6(3) of the Cenvat Credit Rules, 2004 an amount of Rs. 29,44,907/-, at the rate of 6% or 7% on the amount of Rs. 4,79,60,807/- received by it for its job work charges, was demanded through a show cause notice that was confirmed in the adjudication process and appeal before the Commissioner (Appeals) resulted in a direction for re-quantification on proportionate basis to the tune of exempted service along with interest and equivalent penalty. Appellant questioned the legality of such order.

Mr. V.B. Gaikwad, the counsel for the appellant has submitted that the primary basis of confirmation of such order by Commissioner (Appeals) was that he placed reliance on Hema Engineering Industries Ltd. Vs. CCE that has been distinguished in Shree Organo Chemicals Ahmedabad P. Ltd. Vs. CCE wherein it has been clearly held that exemption availed by Hema Engineering Industries Ltd. was under Notification No. 8/2005-ST whereas appellant’s case is covered under Notification No. 214/86-CE (NT) in which case the ultimate manufacturer was discharging the duty liability for which the process of partial manufacturing by the appellant cannot be treated as a service to put the activity under the category of exempted service so as to make Rule 6(3) applicable.

On the other hand, the respondent department submitted that the ratio of Hema Engineering Industries Ltd. case law is squarely applicable to the appellant and not the above referred decisions on which appellant’s Counsel has placed reliance for the reason that those judgments were based on inputs only and not on input services.

The coram of Judicial Member, Dr. Suvendu Kumar Pati noted that the work undertaken by the appellant was part of the process of manufacturing and not a service rendered by it to the ultimate manufacturer.

“The appeal is allowed and the order passed by the Commissioner (Appeals) is hereby set aside exempting the appellant from the liability to pay the amount or interest and penalty confirmed in the adjudication process,” the court ordered.

Subscribe Taxscan Premium to view the Judgment

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.

taxscan-loader