Manufacturing of Drugs like Tetracycline, Neocycline are Exempted from Excise Duty and, Not Fall under BAS: CESTAT [Read Order]

The Ahmedabad bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the manufacturing of drugs like tetracycline, and neocycline are exempted from excise duty and does not fall under Business Auxiliary Service (BAS).

Pharmanza India Pvt Ltd, the appellant engaged in the activity of manufacturing drugs like Tetracycline, Neocycline etc. as a loan licensee for various companies. The department was of the view that the drugs manufactured by the appellant are exempted from payment of central excise duty. Hence, the appellant is liable to pay service tax under the category of business auxiliary service on the gross amount received by the appellant for the manufacture and supply of the drugs.

Shri Amal Dave, Counsel appearing on behalf of the appellant submitted that the activity carried out by the appellant is admittedly a manufacturing activity of excisable goods in terms of Section 2 (f) of the Central Excise Act, 1944. He further submitted that the manufacturing activity in terms of section 2 (f) is excluded from the definition of Business Auxiliary Service where the demand was confirmed under the subhead “production of goods on behalf of the clients”. 

It was viewed that the activity of manufacturing drugs on behalf of the principle is excisable in terms of Section 2 (f) of the Central Excise Act, 1944. The demand was confirmed on the very same activity under the category of Business Auxiliary Service and the subhead “production of goods on behalf of the clients”. 

A two-member bench comprising Mr Ramesh Nair, Member (Judicial) and Mr C L Mahar Member (Technical) observed that the Revenue while demanding the service tax also took support from the exemption Notification No. 08/2005-ST contending that since the appellant’s manufacturing activity is exempted from excise duty, the exemption Notification No. 08/2005- ST is also not available.

“The activity does not fall under the definition of business auxiliary service since the same is excisable manufacturing activity in terms of Section 2 (f) of Central Excise Act, 1944 the Notification 08/2005 – ST   is irrelevant in the present case. It is noteworthy that the said notification is only relevant when the service is taxable under Finance Act, 1994 which is not the case here as per our above discussion.”, the CESTAT held. 

While allowing the appeal, the CESTAT set aside the order.

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