Full Judgment
The assessees challenge the demand of service tax of Rs.37,637/- together with interest and penalties imposed under Sections 76 and 78 of the Central Excise Act, 1944.
The demand is on certain activities such as processing and assembling Jeans Buttons with metal inserts and nylon inserts, and processing Needle Threader, on the ground that the processes do not amount to manufacture so as to be excluded from the levy of service tax.
2. I have heard both sides. Although the assessees had argued that the processes carried out by them amount to manufacture and therefore they have not provided any Business Auxiliary Service as held by the department, this argument was given up and the ld.consultant for the appellants raised the alternative contention that, even if the finding that the processes carried out did not amount to manufacture and they were, therefore, covered under Business Auxiliary Service is upheld, the duty liability arises from only w.e.f. 16.6.2005 when the processing of goods was included in the definition of Business Auxiliary Service. He also contended that since the Commissioner (Appeals) had extended the benefit under Section 80 by accepting that the assessees had a reasonable cause for failure to pay service tax, no penalty should have been retained [Commissioner (Appeals) has reduced the penalty from the penalty imposed by the adjudicating authority].
3. Ld.SDR reiterates the finding of the authorities below.
4. I see merit in the submission of the assessees that their liability to service tax arises only w.e.f. 16.6.2005 as the definition of Business Auxiliary Service did not include processing of goods at any time prior to 16.6.2005. This is the view expressed by the Tribunal in the case of Gedee Weiler Pvt. Ltd. Vs CCE Coimbatore [2010-TIOL-603]. As regards penalty, I find that in view of clear language of Section 80 of the Finance Act, 1994, the assessees are correct in contending that once the shelter under Section 80 has been extended by the Commissioner (Appeals) and this part of the order has not been challenged by the Revenue, no penalty could have been retained. I, therefore, set aside the penalties as reduced by the Commissioner (Appeals). The service tax demand is required to be re-quantified for the period post-16.6.2005 and this is an exercise which is to be carried out by the adjudicating authority to whom the case is remitted only for this purpose.
5. In the result, the appeal is partly allowed as above.
6. The MISC application raising additional ground that no demand can be sustained for the period prior to 16.6.2005 is allowed as it is based upon the decision of the Tribunal cited supra.