Custom, Excise & Service Tax Tribunal
Indo Mim Pvt Ltd vs Commissioner Of Central Tax, Bangalore ... on 3 March, 2022
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
REGIONAL BENCH
EXCISE APPEAL NO: 21567 OF 2016
[Arising out of Order-in-Original No: BLR-EXCUS-004-COM-10-2016-17
dated 01st August 2016 passed by the Commissioner of Central Excise,
Bangalore -IV.]
Indo Us Mim Tec Pvt Ltd
43-44-45 (P) KIADB Industrial Area, Doddaballapur
Bengaluru - 561203 ... Appellant
versus
Commissioner of Central Excise
Bangalore IV
HMT Bhavan, Bellary Road, Bengaluru - 560032 ...Respondent
WITH EXCISE APPEAL NO: 20517 OF 2017 [Arising out of Order-in-Original No: BLR-EXCUS-004-COM-29-2016-17 dated 10th January 2017 passed by the Commissioner of Central Excise & Service Tax, Bangalore-IV.] Indo MIM Pvt Ltd 43-44-45 (P) KIADB Industrial Area, Doddaballapur Bengaluru - 561203 ... Appellant versus Commissioner of Central Excise Bangalore - IV HMT Bhavan, Bellary Road, Bengaluru - 560032 ...Respondent AND EXCISE APPEAL NO: 21581 OF 2017 [Arising out of Order-in-Original No: BLR-NORTH-COM-01-2017-18 dated 31st July 2017 passed by the Commissioner of Central Tax, Bangalore North.] E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 2 Indo MIM Pvt Ltd 43-44-45 (P) KIADB Industrial Area, Doddaballapur Bengaluru - 561203 ... Appellant versus Commissioner of Central Tax Bangalore - IV HMT Bhavan, Bellary Road, Bengaluru - 560032 ...Respondent AND EXCISE APPEAL NO: 21652 OF 2017 [Arising out of Order-in-Original No: BLR-NORTH-COM-02-2018-19 dated 23rd July 2018 passed by the Principal Commissioner of Central Tax, Bangalore North.] Indo MIM Pvt Ltd 43-44-45 (P) KIADB Industrial Area, Doddaballapur Bengaluru - 561203 ... Appellant versus Principal Commissioner of Central Tax Bangalore North HMT Bhavan, Bellary Road, Bengaluru - 560032 ...Respondent APPEARANCE:
Shri Ramesh Ananthan, Chartered Accountant for the appellant Shri P Gopakumar, Additional Commissioner (AR) for the respondent CORAM:
HON'BLE MR ASHOK JINDAL, MEMBER (JUDICIAL) HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) FINAL ORDER NO: A / 20180-20183 /2022 DATE OF HEARING: 03/03/2022 DATE OF DECISION: 03/03/2022 E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 3 PER: C J MATHEW Though three appeals have been filed by M/s Indo-US-MIM Tech Pvt Ltd against confirmation of demand under Central Excise Act, 1944 for the period from April 2015 to June 2017 and one pertaining to demand under Finance Act, 1994 for the period from April 2011 to March 2015, we take all four up for disposal owing to the common issue of exigibility of the very same activity to tax under both statutes. The appellant supplies 'complex shaped metal components' in fulfilment of orders placed by customers who also pay for 'tool moulds' produced, and retained, by the appellant for undertaking such manufacture. The value of such 'tool moulds', amounting to ₹78,38,13,797 for the period from 2011-12 to 2014-15 was proposed to be subject to tax of ₹9,55,91,596 under section 73 of Finance Act, 1994, along with interest thereon, besides being subjected to penalty under section 78 of Finance Act, 1994 and ₹10,41,58,080 under section 11A of Central Excise Act, 1944, along with interest thereon, besides being subjected penalty under section 11AC of Central Excise Act, 1944. In the face of this perverse application of both statutes to the same purported taxable event, the impugned proceedings culminating in order-in-original no. BLR- EXCUS-004-COM-10-2016-17 dated 1st August 2016 of Commissioner of Central Excise, Bangalore -IV, order-in-original E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 4 no. BLR-EXCUS-004-COM-29-2016-17 dated 10th January 2017 of Commissioner of Central Excise & Service Tax, Bengaluru-IV, order-in-original no. BLR-NORTH-COM-01-2017-18 dated 31st July 2017 of Commissioner of Central Tax, Bangalore North and order- in-original no. BLR-NORTH-COM-02-2018-19 dated 23rd July 2018 of Principal Commissioner of Central Tax, Bangalore North merits quashing at the threshold; we, however, forbear from such a course of action as it behoves us to subject the impugned orders to the test of legality and propriety on the facts too.
2. Not surprisingly, there is considerable layering in the orders that require peeling off to arrive at core of adjudicatory intent, and more particularly, in the fastening of liability under Finance Act, 1994. Insofar as the demands under Central Excise Act, 1944 is concerned, it would appear that the retention of the 'tool moulds' by the appellant despite having been bought by their customers sufficed to hold that these were neither exported nor entitled to the benefit of exemption extended under notification no. 67/95-CE dated 16th March 1995. It is common ground that the 'tool moulds', though paid for by customers outside the country, continued to be put to use in the factory of the appellant for manufacture of the final product. It is such manufacture that is exempted from levy of excise duty under notification no. 67/95-CE dated 16th March 1995 upon such use. The effecting of payment for these 'tool moulds' by the overseas E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 5 customer does not detract from eligibility for the exemption notification. Ownership is not a discriminating benchmark for liability to, or exemption from, duties of central excise which, in the constitutional scheme of tax, is on manufacture. The Tribunal, in BPL Electronics Ltd v. Collector of Central Excise, Bangalore [1994 (03) LCX 0096 = 1994 (71) ELT 801 (Tribunal)], had occasion to examine the scope for imposition of duty upon alienation of intermediate goods and it was held that „9. The goods in this case have admittedly not been removed or cleared from the factory and it is also not disputed that the moulds were intended for utilisation in the further production of excisable goods. As per Rules 9 and 49, the fact of its utilisation in the manufacture of the final goods, is itself a removal, and thus a manufacturer is surely liable to discharge the duty, irrespective of the sale of the goods. However, in this particular case, the dutiability is exempted by a specific notification. The department is granting the benefit of the notification, undisputedly in respect of moulds utilised by the appellants, in the factory itself and which are not subject matter of sale invoices. But the duty has been demanded only in respect of those 41 moulds which have been sold to B.P.L. Finance Ltd. by denying the benefit of the exemption notification in question. This is totally an illogical and irrelevant consideration. The goods are dutiable, irrespective of sale or not. But once they are exempted from payment of duty on its further utilisation in the factory itself, then the question of collecting duty does not arise. The grant of benefit of exemption under notification in question is only on the criteria of the goods being "manufactured in a factory and intended for use in the factory in which they are manufactured". Admittedly, the goods manufactured, were intended for use in the factory in which they were manufactured, thus the question of discharging duty on the basis of mere fact of raising an invoice in favour of B.P.L. Finance Ltd. does not create a liability for charging duty at all. So long as the goods have been manufactured in a factory and are intended for use in the factory in which they were manufactured, the exemption straight away applies. As stated earlier, the levy of excise duty is on manufacture and not on saleability, as already noted from the rulings cited above.‟ and followed thereafter by the Tribunal in Elecon Clipsal India Ltd v. Commissioner of Central Excise, Ahmedabad-I [2002 (09) E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 6 LCX0201]. Consequently, the demand of duties of central excise for the period from April 2015 is not tenable and the three impugned orders are set aside.
3. In the order for recovery of service tax, the levy was sought to be fastened on the very same foundational logic of ownership sufficing to evince the production as not being for themselves but, being „(v) production or processing of goods for, or on behalf of, the client‟ enumerated in section 65(19) of Finance Act, 1994, is 'business auxiliary service' that is taxable, upon being provided or agreed to be provided „(zzb) to a client, by any person in relation to business auxiliary service;‟, as per section 65 (105) of Finance Act, 1994, for the period prior to 30th June 2012. According to the impugned order, conformity with 'service', as defined in section 65B(44) of Finance Act, 1994 for the 'negative list' regime continued the liability after 1st July 2012 till 31st March 2015. Flying, as it does, in the face of the illogic in taxing 'consideration' received from outside India, manifesting export of service eligible for the privilege conferred in Export of Service Rules, 2005 for the earlier period and from the exception afforded by rule 6A of Service Tax Rules, 1944 subject to Place of E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 7 Provision of Service Rules, 2012 after commencement of 'negative list' regime, the impugned order continued, without legal authority for doing so, to deem 'tool moulds' as supplied by the owner owing to non-removal from the factory and for non-inclusion of the amortized value thereof in the value of the final product. We have heard Learned Chartered Accountant and Learned Authorized Representative at length on the leviability to service tax.
4. The assessable value adopted for computing tax liability is the 'consideration' received in convertible foreign exchange by the appellant from the overseas entity for 'tool moulds' which may be assessed as domestic transaction for the period prior to 1st July 2012 only if not provided in relation to immovable property outside India, if beyond the ambit of 'performance outside India' for specified services or if, in the remaining services, not to a recipient outside India as per Export of Service Rules, 2005 and for being 'service', as defined in section 65(44) of Finance Act, 1994, performed within 'taxable territory' on goods supplied by client from abroad during the period thereafter till March 2015 as provided for in Place of Provision of Service Rules, 2012. Effectively, 'consideration' for transfer of ownership of goods that were put to use in India was construed as 'consideration' for rendering services within the 'taxable territory' without, in the first instance, ascertaining the conformity of the contracted task to manufacture - the exception to E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 8 activities enumerated as 'business auxiliary service' in section 65(19) of Finance Act, 1994. Likewise, for the period after 1st July 2012, the payment for 'tool moulds' has been conjectured as 'consideration', referred to in section 65B(44) of Finance Act, 1994, without first ascertaining conformity with the entirety of definition of 'service' before adverting to Place of Provision of Service Rules, 2012 that permits the shifting of boundaries of 'taxable territory' in Finance Act, 1994. The findings in the impugned order that „5.5 After holding the activity of the assessee as a service, now I discuss as to whether the said service activity done by the assessee is a taxable service, if so the category of service under which the same is classifiable. It is alleged in the SCN that the activity is classifiable under the category 'Business Auxiliary Service' up to the period 30.06.2012 and as Taxable Service' with effect from 01.07.2012 onwards. The assessee argued that the activity done by them amounts to manufacture and hence, it is not a taxable service at all even if the activity is treated as a service as the activity of manufacture is outside the preview of service tax. To decide this, let me discuss the definition of the taxable service prior to and post 01.07.2012. In terms of Section 65(19) of the Act, the activity of tool development and tool modification, done on behalf of a client in respect of the goods belonging to their client is taxable in terms of Section 65(105)(zzb) of the Act up to the period 30.06.2012. Further, for the period from 0107.2012 onwards, the activity of tool development and tool modification done on the goods belonging to another person is a taxable service in terms of Section 65B(44) read with Section 65B(51) of the Act. Also, it is very clear from the Negative list in terms of Section 66D of the Act. Accordingly, I hold that the service of Tool Development and Tool modification is a taxable service for the entire period of demand covered under the SCN.
5.6 The assessee contended that the activity, if considered as a taxable service, even then they are not liable to pay the service tax as the service is an export of service in terms of export of services rules and place of provision of rules. It is a fact that the activity of tool development and modification is done on the goods available here and the service is performed within the territory of India as the goods are not physically exported E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 9 and very much available in the factory of manufacture of the assessee. Since the benefit of such service is used for further production of components within India, the same will not fall under the category of export of service. When the service is performed within the taxable territory in respect of the goods available within India and the benefits of such service is accrued in India, the same cannot be treated as an export of service as claimed by the assessee. In terms of the provisions of place of provision of Rules, 2012 the place of provision of service would be the location where the services are actually performed. The Rule 4(a) of the said rules states that ' place of provision of service., shall be the location where the services are actually performed, namely:- (a) services provided in respect of goods that are required to be made physically available by the recipient of the service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service....'. In the instant case, the service provided is in relation to the goods made available at the place of factory of manufacture of the assessee and hence, the service provided in India and accordingly, it is not an export of service as claimed by the assessee. Accordingly, I hold that the assessee is liable to pay the service tax in respect of the consideration received for Tool development/modification charges. The case laws relied upon by the assessee are with regard to manufacture, captive consumption and export of goods and are not relevant to the service of tool development and hence are not relevant to the issue on hand.‟ does not evince compliance with the pre-requisite of such ascertainment.
5. Moreover, 'tool moulds' are goods manufactured by the appellant and, hence, within the ambit of „but does not include any activity that amounts to manufacture of excisable goods‟ in section 65(19) of Finance Act, 1994 for excluding coverage of tax under section 65(105)(zzb) of Finance Act, 1994 and „(f) services by way of carrying out any process amounting to manufacture or production of goods....‟ E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 10 in section 66D of Finance Act, 1994 to take the activity beyond coverage of Finance Act, 1994 owing to which the finding that „5.4 I find from the records that the assessee have undertaken the activity of development of tools/moulds and raised the invoice for the same to their foreign customers to collect the tool developmental charges. Upon approval, the assessee produced the tools/moulds on behalf of their foreign clients and charged and collected the mould cost from them. For this, I find from the documents on record, that the assessee raised export invoice and however, the said tools/moulds were not physically exported but kept within the factory of manufacture of the assessee. The said fact has been reiterated by the assessee, through the statement recorded under Section 14 of the Central Excise Act, 1944 as well as in their submissions made in response to the allegations made in the SCN. Hence, there is no dispute with regard to the position of non-export of the tools/moulds produced by the assessee on behalf of their foreign clients. The dispute by the assessee is only with regard to their activity of development and also re-work/modification done in respect of such tools/moulds. In terms of the Purchase order (reference P.O. No. 4500040698) Title and the risk of loss to the goods shall pass to the Buyer and with regard to the ownership it is clearly mentioned that shall remain with the buyer and such materials shall be removed at any time without cost upon demand by buyer; such goods shall be stored separately and clearly identified as the property of buyer. The said clause and also the admittance of the assessee in their statements and also in the submissions, clearly establish that the property belong to the buyer abroad and however, remain in India without physically/actually being exported and is in the possession of the assessee and accordingly, the same cannot be treated as tools/moulds have been exported. Further, once the transaction with regard to the development and further production of tools/moulds are over, the ownership of the said goods i.e. tools/moulds lies with the buyer, as per the assessee's own documents and submissions and for any reason such goods can be treated as assessee's own goods. It is a fact that such goods are used in the manufacture of components which are exported to the customers and a separate invoice is raised for cost of such components cleared. From this I find that the tool development and the manufacture of components are two different and distinct transactions altogether. The assessee, however, argued that the tool/moulds are used in the manufacture of final products i.e. components which are exported and hence, no duty is payable on the intermediary goods (tools/moulds) manufactured. I find that the assessee has misunderstood the issue of taxation under service tax in as much as nowhere In the SCN duty of Excise is demanded for production of tools/moulds and the issue involved is tax on the activity of development of tools/moulds for and on behalf of their E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 11 clients. When as activity is done on an item belonging to other person for certain consideration, which are available in India, the same is construed as a service for a consideration and if such service is a taxable service, the same is liable for payment of service tax unless otherwise such service is exempted I find from the records that all along the assessee argued the case that they are exporting the final products for which duty is not payable. It is not a dispute at all in the SCN that the goods being manufactured and exported by the assessee are exempted from payment of duty of Excise. It is a fact that the tools/moulds belonging to a client (other person) are being used by the assessee for manufacture of components meant for the said client as per their requirement and hence, any activity of development or modification done in respect of such tools/moulds cannot be said an activity done on their own goods during the process of manufacture when the ownership of the goods are not with the assessee. The said tool development activity is not an activity of manufacture which is clearly brought out in the SHOW CAUSE NOTICE and I hold that the activity done by the assessee is a service and not an activity of manufacture.‟ is unacceptable.
6. The adjudicating authority has sought to invoke rule 3(1) of Export of Service Rules, 2005 which is designed for exempting tax on provision of such services, as are enumerated in the three mutually exclusive categories and in conformity with the determinant therein, for the period before 1st July 2012. Such evaluation is warranted only when a taxable service is claimed for exclusion by having been exported. 'Place of performance', the evaluation benchmark for determining provision of specified services outside India, which does not, however, encompass 'business auxiliary service' within which the adjudicating authority has sought to levy tax from appellant and 'location of recipient', the touchstone for all 'taxable services' other than those in rule 3(1)(i) E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 12 and 3(1)(ii) of Export of Service Rules, 2005 such as 'business auxiliary service', precludes the devolution of the levy on the appellant.
7. The reliance placed by the adjudicating authority on rule 4 of Place of Provision of Service Rules, 2012 for determining the activity as having occurred in the 'taxable territory' to fasten the liability on the 'provider' is premised upon construing the payment made by the overseas customer for 'tool moulds' as supply from them; this is factually erroneous as the 'tool moulds' did not ever leave the factory of manufacture, let alone the country. In the absence of physical supply of 'goods' by the overseas customer, recourse cannot be had to rule 4 of Place of Provision of Service Rules, 2012 and the impugned order has erred in determining the activity as occurring in the 'taxable territory' to confirm of levy under Finance Act, 1994 for the period after 1st July 2012.
8. 'Consideration' is not taxable de hors 'taxable service' or 'service', as the case may be. The activity of manufacture is excluded from the ambit of 'business auxiliary service' for the period prior to 30th June 2012 and is in the 'negative list' for the period thereafter.
Export of Service Rules, 2005 and Place of Provision of Service Rules, 2012 have been misapplied in the impugned order. The other demands in the impugned order do not appear to have been challenged E/21567/2016, E/20517 & 21581/2017 & E/21652/2018 13 in this appeal as the grounds of appeal are conspicuously silent on that.
9. 'Tool moulds' are captively consumed by the appellant in the manufacture of goods that are exported. The value of manufactured goods, and inclusion of amortized cost of supplies made by buyer of manufactured goods therein, is relevant only for eligibility of 'intermediate goods' for exemption from duty to the extent of such inclusion owing to deferred discharge of duties of central excise. It is not in dispute that the final products, manufactured by deployment of 'intermediate goods', are exported and, being excluded from duty liability, without any requirement for such amortization.
10. Accordingly, the impugned orders are set aside insofar as demand under Central Excise Act, 1944 and under Finance Act, 1994 on 'tool moulds' is concerned and appeal allowed to that extent.
(Operative Part of the Order pronounced in the open court on 3rd March 2022) (ASHOK JINDAL) (C J MATHEW) Member (Judicial) Member (Technical) */as