The Ahmedabad Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) held that the service provided for the conversion of raw bauxite into calcinated bauxite did not fall under the category of Business Auxiliary Service.
Meena Agency Limited, the appellant, is engaged in providing various services and is registered for mining service, Goods Transport service, Business Auxiliary Services, Renting of Immovable Property services, etc.
The appellant had raised multiple bills describing services as “Production cost for the Calcined bauxite produced at Gadhsisa Calcination Plant,” which the audit party noticed during the departmental officer’s audit of the statutory records of M/s. Gujarat Mineral Development Corporation.
The department noticed that the appellant had been undertaking job work of converting bauxite into calcined bauxite for M/s. Saurashtra Calcine Bauxite & Allied Industries Limited. Since they had not obtained any permission for the direct despatch of finished goods from the job work premises to various party’s clients, they were alleged to have not discharged service tax liability under Business Auxiliary Services.
Accordingly, a show cause notice dated 12.07.2012 was issued to the appellant, demanding service tax of Rs. 36,44,228/- under Business Auxiliary Services.
The matter was adjudicated by the authority, confirming all the charges as raised in the show cause notice. The appellant filed an appeal challenging the levy of service tax primarily under the category of Business Auxiliary Services.
Amber Kumarwat, Counsel for the appellant, argued that the process turning raw bauxite into calcinated bauxite is classified under Chapter heading 26060010, while calcined bauxite is classified under Chapter heading 26060020. Therefore, this activity results in a new substance classified under a different tariff heading and does not attract service tax.
The counsel also argued that as per the definition given under Section 2(f) of the Central Excise Act, 1944, the government did not intend to tax activities resulting in the ‘manufacture’ of a new substance.
Tara Prakash, Deputy Commissioner for the respondent, supported the findings given in the order-in-original.
After analyzing the contentions of both parties, the CESTAT bench observed that the appellant had been undertaking the work of calcination of raw bauxite into calcined bauxite at their own factory premises. This conversion resulted in the emergence of a new substance classifiable under a separate tariff heading, making it a manufacturing activity.
The bench further observed that the service recipient had been discharging central excise duty liability on the calcinated bauxite received from the service provider (the appellant). Therefore, the service provided by the appellant did not fall under the provisions of Business Auxiliary Service.
The two-member bench of Ramesh Nair, Member (Judicial), and C.L. Mahar, Member (Technical), held that the service provided for the conversion of raw bauxite into calcinated bauxite did not fall under the category of Business Auxiliary Service. Consequently, the bench allowed the appeal filed by the appellant Meena Agency Limited.
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