No Service Tax on Packing of Bulk pack into Retail Packs as Job Work, amounts to Manufacture: CESTAT deletes Demand, Penalty and Interest [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Kolkata bench, has recently set aside service tax demands, penalties, and interest imposed on M/s Emami Limited and its contractors, holding that the activity of packing bulk goods into retail packs constitutes "manufacture" under the Central Excise Act, 1944, and is therefore outside the ambit of service tax.

The case arose from a demand of ₹4.25 crore in service tax against Emami Ltd. on a reverse charge basis, along with ₹19.14 lakh against contractor Chandanj Kakati on a forward charge basis, and penalties on two other contractors - Pradip Das and M/s Vaishno Devi Enterprise. The tax department alleged that these job work contracts were a camouflage for “manpower supply services,” which are taxable.

Emami had engaged three contractors for converting bulk ayurvedic and cosmetic products into retail packs at its Assam facility. The contracts specified that the contractors would employ and supervise their own labour, be paid on a per-piece basis, and bear losses for excess wastage.

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The department, acting on intelligence inputs, claimed the arrangements were actually manpower supply services and issued a show cause notice in October 2019, invoking the extended limitation period.

Key evidence cited by the department included contractors’ statements, wage calculation sheets, profit and loss accounts, GST registration details, and trade licenses indicating “labour contractor” activities. Emami and the contractors challenged the admissibility of these statements, noting that they were later retracted and not tested under Section 9D of the Central Excise Act.

The two-member bench, comprising Judicial Member Ashok Jindal and Technical Member K. Anpazhakan ruled that packing bulk into retail packs amounts to manufacture as per Chapter Notes 5 and 6 of Chapters 30 and 33 of the Central Excise Tariff Act. Such activities fall within the negative list of services under Section 66D(f) of the Finance Act, 1994, and are therefore not liable to service tax.

It was further noted that retracted statements without examination under Section 9D have no evidentiary value and that accounting descriptions and GST/trade license classifications cannot override the legal nature of the transaction.

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Further, Control and supervision of labour rested with the contractors, not Emami, aligning with CBEC’s 2015 circular distinguishing job work from manpower supply. With the activity itself being manufactured, there was no suppression of facts, making the extended period of limitation inapplicable.

Thus, the Tribunal quashed the entire service tax demand along with interest and penalties against all appellants.

It also reaffirmed that when an activity qualifies as manufacture, service tax provisions are not attracted and that genuine job work, even if labour-intensive, should not be misclassified as manpower supply for tax purposes.

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