The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Revenue cannot simultaneously demand service tax and central excise duty on the same job-work activity, while also ruling that job-worked tractor parts used within the factory of the principal manufacturer are eligible for exemption under the relevant Central Excise notifications.
The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that the exemption notification requires only that the specified goods be used within the factory for the manufacture of the prescribed final products. The notification nowhere mandates that the raw material or intermediate goods must have been generated within the same factory.
The appellant/assessee is engaged in the manufacture of tractor parts and is also registered for providing Business Auxiliary Service. The company undertook job work for leading tractor manufacturers, including Mahindra & Mahindra, Action Construction Equipment Ltd., GNA Dura Parts and International Tractors Ltd.
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Under the arrangement, the principal manufacturers supplied cast articles to the appellant. The appellant carried out machining operations such as milling, drilling, boring, chamfering and other processing before returning the finished components to the principals for use in tractor manufacturing. Throughout the relevant period, the company treated the activity as a taxable service and discharged service tax on the job-work charges received while regularly filing statutory returns.
Following an investigation, the Department alleged that neither the job worker nor the principal manufacturers had paid central excise duty on certain tractor components. It contended that the machining undertaken by the appellant amounted to manufacture and therefore attracted central excise duty.
A show cause notice covering the period September 2011 to November 2015 demanded ₹5.95 crore in central excise duty along with interest and penalties. During the pendency of the appeal, another demand for the period December 2015 to June 2017 sought recovery of an additional ₹4 lakh, together with an equivalent penalty. Both demands were confirmed by the departmental authorities, leading to the appeals before CESTAT.
The appellant argued that the parts manufactured by it qualified for exemption under Notification No. 06/2006-CE and Notification No. 12/2012-CE, as they were: parts of tractors, used within the factory of production, and ultimately used in the manufacture of tractors.
It further submitted that all statutory conditions prescribed under the exemption notifications stood satisfied. The appellant also relied on the Supreme Court’s judgment in Lohia Sheets Products and the Tribunal’s earlier decision in Mohindra Cranks, contending that the exemption could not be denied merely because the components originated from job-worked castings.
On limitation, the appellant maintained that it had transparently paid service tax on the job-work charges, remained registered with the Department and regularly filed returns. Since the Department had never objected to this treatment, there was no suppression or intention to evade duty, making invocation of the extended limitation period legally unsustainable.
The Tribunal observed that the controversy was no longer res integra and stood concluded by the Supreme Court’s judgment in Lohia Sheets Products.
The Bench observed that the Supreme Court had rejected the Revenue’s restrictive interpretation and clarified that conditions not found in the notification cannot be read into it.
One of the Tribunal’s most significant findings concerned the Department’s attempt to impose both service tax and central excise duty on the same transaction.
The Bench noted that the appellant had consistently paid service tax by treating the machining activity as a taxable service and that the Department had accepted this position throughout the relevant period without objection.
The Tribunal categorically held that once the Revenue had accepted and collected service tax on the job-work activity, it could not subsequently seek to impose central excise duty on the very same work and consideration.
According to the Bench, such simultaneous taxation was impermissible under law.
The Tribunal further held that the extended period of limitation could not be invoked.
Since the appellant had been duly registered, regularly filing returns and openly paying service tax, there was no evidence of suppression of facts or any deliberate attempt to evade payment of duty.
Accordingly, the Tribunal concluded that the Department’s invocation of the extended limitation period was unsustainable.
Allowing both appeals, the Tribunal held that the appellant was entitled to exemption under the relevant Central Excise notifications and was not liable to pay central excise duty on the disputed job-work activity.
The Bench found it unnecessary to examine the alternative plea regarding entitlement to CENVAT credit. Both the demands, together with the associated interest and penalties, were consequently set aside.
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