CX - Making of corrugated boxes from craft paper - amounts to manufacture - not liable to ST - Order passed by Addl Commissioner shows his total ignorance to Central Excise Law : CESTAT
By TIOL News Service
NEW DELHI, MAY 08, 2014: THE appellant made corrugated boxes from craft paper on job work basis. The appellant received craft paper from their clients . The department was of the view that the process of making corrugated boxes from craft paper being carried out by the appellant is "production of goods not amounting to manufacture" and as such, they are providing 'Business Auxiliary services as defined under Section 65(105)( zzb ) of the Finance Act, 1994 read with Section 65 (19) ibid and accordingly, they would be liable to pay service tax on the job charges being received. On this basis, after issue of show cause notice, the jurisdictional Addl. Commissioner of Central Excise vide order-in-original dated 23.1.2012 confirmed the service tax demand of Rs.16 ,66,399 /- under proviso to Section 73 of the Finance Act along with interest thereon under Section 15 and besides this, also imposed penalty of Rs.5,000 /- on them under Section 77 ibid as well as penalty of Rs.200 /- per day till the payment of service tax under Section 76 ibid and penalty of Rs.16,99,727 /- on them under Section 78 ibid.
The Addl. Commissioner in his order held that the process carried out by the appellant i.e. making of corrugated boxes from craft paper on job work basis, does not amount to manufacture in terms of Section 2(f) of Central Excise Act, 1944 and hence, being production of goods not amounting to manufacture, the same would be covered by the definition of 'Business Auxiliary service' as given in Section 65(105)( zzb ) read with Section 65(19) of the Finance Act, 1994. This order appears to have been passed by the Addl. Commissioner without hearing the appellant, as the appellant neither filed any reply to the show cause notice nor appeared for personal hearing, though the opportunity for the same has been granted.
The appellant filed an appeal to the Commissioner (Appeals) against this order of the Addl. Commissioner. The Commissioner (Appeals), however, vide order-in-appeal dated 03.04.2013 without going into the merits of the case, dismissed the appeal under Rule 5 of the Central Excise (Appeal) Rules, 2001, on the ground that in course of proceedings before the original adjudicating authority, the appellant had neither made any written submission nor had produced any documentary evidence in support of their defence and that they had also failed to reply to the show cause notice and also failed to attend the personal hearing in spite of opportunities having been granted.
Against this order of the Commissioner (Appeals), this appeal has been filed along with stay application.
Since none appeared for the appellant, Shri B.L . Narsimhan , Advocate was directed by the Bench to act as Amicus Curie and explain the case.
After hearing the Amicus Curie and the DR , the Tribunal obvserved :
1. There is no dispute about the nature of the activity of the appellant - making corrugated boxes from craft paper on job work basis.
2. Craft paper is covered by Heading No.4805 of the Tariff , and corrugated boxes are covered by Heading No.4819 of the Tariff. Even the ld. DR agreed that making of corrugated boxes from craft paper would amount manufacture. In view of this, we fail to understand as to how a senior officer of the rank of Addl. Commissioner has confirmed the demand of service tax against the appellant by treating their activities as Business Auxiliary services covered by Section 65(105)( zzb ) read with Section 65(19) of 1994 Act, holding that the process carried out by the appellant does not amount to manufacture under Section 2(f) of the Central Excise Act.
3. The order passed by the Addl. Commissioner shows his total ignorance to the Central Excise Law . It appears that the Additional Commissioner, in his anxiety to confirm the service tax demand made in the show cause notice put up before him for adjudication, did not realize that on the basis of his decision in this adjudication order that making of corrugated boxes from craft paper on job work basis does not amount to manufacture, all the corrugated box manufacturing unit manufacturing corrugated boxes from craft paper would claim that their activity would not attract excise duty.
4. We are also surprised that the Commissioner (Appeals), instead of deciding the appeal on merits, as an Advocate representing the appellant had appeared before him, has chosen to dismiss the appeal by invoking Rule 5 of the Central Excise (Appeal) Rules, which pertains to the production of additional evidence. Considering the reply to the show cause notice and hearing the appellant when the original adjudicating authority had passed an ex parte order without waiting for the reply to the show cause notice cannot be treated as introduction of additional evidence.
5. The impugned order, therefore, is a perverse order not sustainable at all.
The same is set aside and the appeal is allowed.
(See 2014-TIOL-725-CESTAT-DEL)
