Packed Goods before Sterilization are Semi-Finished Goods: CESTAT quashes Service Tax Demand [Read Order]

The Ahmedabad Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT), quashed the service tax demand thereby noting that packed goods before sterilization are semi-finished goods.

The appellant, Universal Medicap Limited, is engaged in the process of sterilizing goods of their client on a job-work basis and for which the job charges are collected. The case of the department is that the said activity falls under the category of Business Auxiliary Service under sub-head “production of processing goods on behalf of client” accordingly, the same is taxable.

The department also denied exemption under Notification No.8/2005 on the ground that, firstly the client has not supplied raw materials and secondly, after the process of sterilization, the goods were not used further in the manufacture of the final product by their client. Being aggrieved by the impugned order the appellant filed the present appeal.

MG Yagnik, Counsel appearing on behalf of the appellant submitted that the condition and criteria laid down under exemption Notification No. 8/2005 stand complied with therefore, the appellant has rightly availed exemption under Notification 8/2005.

The Counsel further argued that the appellant has received some physician goods for processing which is permissible under notification and subsequently, there is no need for further use of the goods after processing by the job-work, in the further manufacture by the client. Therefore, both the reasons cited by the lower authorities for the denial of exemption are not relevant and consequently the order passed on that basis is illegal and incorrect.

G. Kirupanandan, Assistant Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order and that appellant is liable to pay service tax in terms of clarification issued by the Board vide letter F.No. B1/6/2005-TRU dated 27.07.2005.

Quashing the service tax demand, a Two-Member Bench of the Tribunal comprising Ramesh Nair, Judicial Member and CL Mahar, Technical Member observed that “In the present case, the packed goods were supplied to the appellant for carrying out process of sterilization therefore the packed goods before sterilization are semi-finished goods. Therefore, the contention of the Revenue that only raw material should be processed to be eligible for the exemption is incorrect as semi-finished goods are also allowed to be processed for making eligible for the above notification.”

To Read the full text of the Order CLICK HERE

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