By TIOL News Service

NEW DELHI, DEC 18, 2014: HUL was sending goods under Notification No.214/86-CE, dated 25.03.1986 to the appellant to provide service of banding the goods by a strip. Incidentally, the benefit of exemption Notification No.50/2003-CE dated 10.06.2003 (area based exemption) was being claimed & allowed to the principal manufacturer HUL & importantly the appellant was carrying out the activity for the said principal manufacturer in the same campus.

To do such banding, they were receiving soap cakes of different brands from HUL and repacking the same after banding the cakes as per scheme of HUL e.g. "Buy 4 pcs get Rs.5 off ". Appellant was to unpack the soap cakes from cardboard cartons and band 4 pieces with plastic/paper stickers on which the scheme is printed. The banding tapes were preprinted with brand name and MRP of the combo pack. MRP on the single unit of soap was not mentioned as the individual packs were not allowed to be sold separately. After banding the soap cakes, they were repacked in the same cardboard cartons and returned back to HUL. To do all such work they were getting service charges from HUL and they paid service tax.

Appellant bonafide believed that the activity carried out by them was labour oriented and no manufacturing process was being carried out. Such labour work was supply of manpower and was governed by the taxing entry of Finance Act, 1994 "manpower recruitment agency service" and not a manufacturing activity. Under such belief, they obtained service tax registration & paid service tax on the labour charges received from HUL. The Department never disputed about the liability of the appellants under service tax law and they were collecting such tax without any objection from the appellant.

But the department had other plans in store!

Relying on chapter Note 6 of Chapter 34 of CETA, 1985 the Revenue conceived that the appellant was manufacturer and the adjudicating authority held so to levy excise duty of Rs.37,46,69,391/- with equal amount of penalty followed by interest. It was also held by the adjudicating authority that the appellant having failed to file the required declaration in terms of Notification No.50/2003-CE, dated 10.06.2003, which was mandatory, they were barred from availing benefit thereof. The reliance placed by the appellant on the Circular No.908/2009 dated 23/12/2009 in support of their claim for the exemption also bore no fruit. The next claim of the appellant that they were entitled to the benefit of exemption as a job worker under Notification No.214/86-CE, dated 25.03.1986was disallowed on the ground that the appellant was not a job worker and that only if the goods are cleared by the principal manufacturer on payment of duty from factory, the appellant is entitled to benefit thereof.

The Bench, after considering the lengthy submissions made by the appellant which also included their submission of the demand being hit by limitation & the submission by the AR that declaration was mandatory for claiming the benefit of notification 50/2003-CE while seeking the support of the apex court decision in Eagle Flask Industries Ltd. Vs. CCE, Pune 2004-TIOL-74-SC-CX and reiterating the contents of the o-in-o, inter alia observed -

++ The appellant banding more than one soap by a preprinted band affixed with MRP rendered the goods marketable at the price mentioned on the band. There was no unit price mentioned on each unit of the soap. The combo pack only specified the price at which the pack of soaps shall be sold. The appellant repacked the unit pack in a combo pack and joining both the ends of the band brought such pack to the stage of marketability at a price stated on the band. Of course, the unit soap even without banding was marketable because of its attribution and capability of commanding value in the market. However, no MRP mentioned on the single unit pack handicapped it to be marketable. The soap being covered by section 2(f)(iii) of the Act made the activity carried out by appellant to be "manufacture" within the scope and ambit of section 2(f)(ii) of the Act read with Chapter Note 6 to Chapter 34 of Central Excise Tariff Act, 1985. It has thus become a manufacture .

++ Once the activity carried out by the appellant brought it to the scope of manufacture as above, it cannot claim to be a mere service provider since service connected to the principal activity of banding became secondary. It was a job worker of HUL. But for the reason that the main product was exempted from duty under Notification No.50/2003-CE, dated 10.06.2003 it was not entitled to the benefit of Notification No.214/86-CE, dated 25.03.1986.

++ Para 4 of Notification No.50/2003-CEhaving been inserted w. e. f. 18.01.2008, that is not applicable to the case of the appellant prior to that date.

++ Primary object of the Notification No. 50/2003-CE, dated 10.06.2003 is to grant duty exemption to manufacturing units situated in the area specified therein subject to fulfillment of conditions prescribed therein read with the Board Circular No.908-CX , dated 23.12.2009 as well as Circular No.757/73/2003-CX, dated 22.10.2003. It is not in dispute that the appellant was situated in the specified area of Himachal Pradesh and entitled to the exemption benefit granted by the notification read with the Board circulars. However relying on the copy of agreement dated 01.09.1977 and Board Circulars, the appellant bona fide believed that it was a mere service provider and not a manufacturer for the reasons mentioned and failed to file necessary declaration for consideration of its exemption status by the Authority.

The Bench, thereafter, relied upon the decisions in Associated Cement Companies Ltd. v. State of Bihar & Ors ., (2004) 7 SCC 642, G.P. Ceramics Private Limited v. Commissioner, Trade Tax, Uttar Pradesh, (2009) 2 SCC 90 , Customs (Preventive) Mumbai v. M. Ambalal and Company, 2010-TIOL-111-SC-CUS, State of Jharkhand Vs. Ambay Cements 2004-TIOL-89-SC-CT where it is held as under -

++ It is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally;

++ Beneficial notification providing the levy of duty at a concessional rate should be given a liberal interpretation;

++ Filing of declaration before first clearance being necessity of notification, that cannot be given goby.

Noting that in paragraph 60 of the order in original, the adjudicating authority had recorded that the noticee had claimed the benefit of the notification 50/2003-CE but the same was incomplete as some details were missing, the CESTAT observed that the same leads to the conclusion that the appellant was entitled to cure the defect providing necessary particulars for consideration of its claim of exemption under the notification above since it was primarily entitled to the area based exemption being situated in the specified area of the State of Himachal Pradesh.

The Bench also observed that there was nothing on record to show that either appellant or HUL suppressed any fact to the authority and that the appellant had not acted mala fide; that i t is primarily entitled to the benefit of exemption notification; that it only failed to file necessary declaration under bonafide belief that they were not a manufacturer but a service provider and had discharged service tax; that Non-filing of declaration in terms of notfn. 50/2003-CE is not suppression of fact; that there was nothing on record to appreciate that appellant had any intention to evade duty and, therefore, appellant acting bona fide is not debarred to file the same before the authority to re-examine its eligibility to the exemption, otherwise that would defeat object of the area based exemption. [ Commissioner of Sales Tax v. Industrial Coal Enterprises, (1999) 2 SCC 607 refers]

Conclusion:

++ On the aforesaid factual back ground and law, remanding the matter for filling of necessary declaration by the appellant for scrutiny of the adjudicating authority to grant area based exemption shall serve interest of justice.

++ Adjudicating authority has recorded that the appellant did not provide manpower supply service. In such case, realisation of service tax from the appellant is unwarranted under law. Therefore, that should be refunded to the appellant against appropriate application filed.

The appeal was disposed of by way of remand.

(See 2014-TIOL-2553-CESTAT-DEL)