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Judgment
C.L. Mahar, Member (T)
The appellant are engaged in the manufacture of fertilizers falling under Chapter 31 of the Central Excise Tariff Act, 1985. The appellant are registered with service tax department for various purposes. The appellant manufactures Urea out of two basic raw materials namely Ammonia (NH3) and Carbon Dioxide (CO2) and Nitrogen from Air. They have in house facility called Ammonia plant for manufacturing Ammonia/ Carbon Dioxide from natural gas and nitrogen (taken from air). For manufacturing of ammonia, the appellant procure NGL/ARN from ONGC, Hazira, Surat and Natural Gas from GAIL. During the course of manufacturing of ammonia, a feed synthesis gas that is mixture of Nitrogen and Hydrogen in the ratio of 1:3 gets produced as intermediary product. The feed synthesis gas contains traces of deuterium. For manufacturing of ammonia, deuterium is required to be detached from feed synthesis gas.
1.2 The deuterium after getting detached from feed synthesis gas is used as basic raw material for manufacture of Nuclear Grade Heavy Water which is used as moderator‟ and coolant‟ in the Nuclear Power Station as well as at research reactor by the department of Atomic Research, Government of India. Heavy water (D2 O) is the oxide of deuterium, an isotope of hydrogen where as ordinary water (H2 O) is an oxide of Hydrogen.
1.3 It is a matter of record that department of Atomic Research Centre established Heavy Water Plant named as Hazira Ammonia Extension Plant (HAEP for short) owned by Government of India near to the ammonia plant of appellant. On 18.12.1999, the appellant entered into an operation and maintenance agreement with the Heavy Water Board, Department of Atomic Energy, Government of India and agreed to supply the feed synthesis gas generated into the ammonia plant of the appellants to the HAEP. Thus the synthesis gas generated at the ammonia plant of the appellant at a very high temperature travels in a loop and passes through HAEP and return to the appellant‟s plant once the deuterium extracted for generation of the heavy water.
1.4 It is also a matter of record that in addition to supply of feed synthesis gas, the appellant is also supplying some other utilities like de-mineralised water, steam, Nitrogen etc. as and when required for manufacture of Heavy Water. As per agreement dated 18.12.1999, the appellant also agreed to perform operation of management of the plant as per directions and under the control of Heavy Water Board, Department of Atomic Energy, Government of India for manufacturing Heavy Water. The above mentioned agreement has been amended from time to time as per understanding between the appellant and Heavy Water Board, Department of Atomic Energy. The department during the course of audit of the appellant‟s books of accounts found that the appellant have not paid service tax on the amount which has been received by them from the Heavy Water Board, Department of Atomic Energy and therefore, show cause notice dated 16.06.2005 covering the period from July 2003 to March 2004 was issued demanding service tax under the category of Management or Repair Service and demanded service tax of Rs. 1,02,33,701/- under Section 73 of the Finance Act, 1994. The show cause notice also invokes the provisions of Section 75 for the purpose of demanding interest as well as penalties under Section 77 and 78 of the Finance Act, 1994.
1.5 On the same issue the department has issued another show cause notice dated 01.05.2009 whereunder the service amounting to Rs. 3,14,96,233/- has been demanded for the period April 2004 to November 2006 under Section 73(1) of the Finance Act, 1994 by invoking extended time proviso. The demand under this show cause notice has been made under three categories namely; Business Auxiliary Service as defined and provided under Section 65(19) of the Finance Act, 1994 and under Manpower Recruitment or Supply Agency Service as defined under Section 65 (64) of the Finance Act, 1994 as well as under Maintenance or Repair Service. The interest and penal provisions have also been invoked in the show cause notice. The above mentioned show cause notices have been adjudicated by the learned Commissioner vide orders-in-original 10/Service Tax/2012 dated 28.12.2012 for the show cause notice dated 01.05.2009 and order-in-original No. 11/Service Tax/2012 dated 28.12.2012 for the show cause notice dated 16.06.2005 wherein all the allegations have been confirmed by the Adjudicating Authority. The appellant is before us against the above mentioned orders-in-original.
Shri Jigar Shah, Learned Counsel appearing along with Shri Amber Kumarawat submitted that in the first show cause notice dated 16.06.2005 whereunder demand has been made for the period July 2003 to March 2004 the department in this show cause notice dated 16.06.2005 had proposed to demand of service tax for the entire gross amount received by the appellant under the head Maintenance or Repair Service. For the same activity, the second show cause notice has demanded service tax under the categories of Business Auxiliary Service, Manpower Recruitment or Supply Agency Service and Maintenance or Repair Service. As per the break-ups of consideration given in the agreement and the learned Adjudicating Authority has confirmed the demand without application of mind.
2.2 It has further been contended by the learned Counsel that in case for the period prior to 16.06.2005, the definition of Maintenance or Repair Service dealt with any service in relation to Maintenance and Repair or Servicing of any goods or equipment excluding motor vehicle. As per the understanding of term goods, it refers to movable property and not immovable property like manufacturing plant. Further, the term equipment‟ would not cover the entire manufacturing plant and to normal understanding equipment would cover items such as computer, fax machines etc. which would generally be movable items. Since the Heavy Water plant is not in the nature of movable property, therefore no demand of service tax of the activity of operation and maintenance of Heavy Water plant can be made under the category of Maintenance or Repair Service for the period prior to 16.06.2005. It has further been stressed by the learned Advocate that the Adjudicating Authority has not given any reasoned findings in the impugned orders-in-original as to how the activity of operation of Heavy Water plant gets covered under the head of Maintenance or Repair Service and therefore, the impugned order-in-original is bad in law and needs to be set-aside.
2.3 It has further been argued by the learned advocate that the department cannot arbitrarily classify same activity under two different categories of the service and it is incumbent on the department to have the clarity with regard to classification of activity for charging service tax. Learned advocate in this regard has relied upon the decision in the case of Royal Western India Turf Club Limited vs. CST, Mumbai 2012 (11) TMI 526-CESTAT MUMBAI. Learned advocate has also mentioned that Heavy Water‟ has been mentioned as manufactured product in the Central Excise Tariff Act, 1985 and attracts nil rate of duty. Since the activity undertaken by the appellant falls under the category of manufacturing of goods on behalf of the principal manufacturer i.e. Heavy Water Board, Department of Atomic Energy, Government of India and therefore is not leviable to service tax as per the provisions of Finance Act, 1994. The learned Adjudicating Authority has grossly erred in giving findings that Heavy Water is not excisable goods without substantiating this view. The learned advocate has further submitted that appellant is manufacturing Heavy Water which is a new commodity with different name, character and use and comes into existence when the appellant operates the Heavy Water plant. Thus the activity undertaken by the appellant clearly amounts to manufacturing of excisable goods.
2.4 It has further been submitted that the consideration which was received by the appellant from the Heavy Water Board, Department of Atomic Energy was for operating Heavy Water plant and production of Heavy Water which is their main activity. The other activities carried out by the appellant are incidental to the main activity and undertaken for smooth functioning of the Heavy Water plant. It has been brought to our notice that learned Commissioner has heavily relied upon the fact that appellant has paid service tax under taxable head of Business Auxiliary Service‟ after 16.06.2005. It has been argued that merely because the appellant has paid service tax, it is not meant that they have accepted the liability to pay service tax. It has also been brought to our notice that service tax paid by the appellant was paid under protest. Learned advocate submits that Adjudicating Authority should have determined independently the taxability of the activity undertaken by the appellant without mentioning that appellant have paid service tax under Business Auxiliary Service after 16.06.2005.
2.5 With regard to service tax liability in respect of service of the employees deployed for operation of plant, learned advocate has taken us through the definition of Manpower Recruitment or Supply Agency Service and has pointed out that employees working at the plant were employee at the pay-roll of the appellant and salaries were also paid by the appellant. There is no case of supply of manpower to the Heavy Water plant. Learned advocate relied upon the case law of Paramount Communication Limited vs. CCE 2013-TIOL-37-CESTAT-DEL wherein this Tribunal has held that there is no case of supply of manpower because the employees concerned continued to work for the appellant also and an arrangement in which certain employees work for two of sister concerns and the expenses of employees are shared, the manpower is not supplied by one Company to other. The learned advocate also mentioned that comprehensive contracts cannot be vivisected for the purpose of levy of service tax, as held by this Tribunal in the case of M. Ramakrishna Reddy vs. CCE&C, Tirupathi 2009 (13) STR 661 (Tri. Bang.) wherein it has been held that comprehensive contract cannot be vivisected and essential activity for which the contract has been entered into should be considered to determine under which category the services of the appellant fall.
2.6 It is vehemently argued by the learned advocate that the entire demand for the period 01.04.2004 to 30.11.2006 is barred by limitation as there was no suppression of facts by the appellant. It has been submitted that department had started enquiry against the appellant in the year 2003 and sought various details during the CERA audit. It is matter of record that on the basis of information provided by the appellant, the first show cause notice was issued on 16.06.2005 demanding service tax for the period July 2003 to March 2004. It is therefore submitted that at the time of issuance of second show cause notice the department was well aware about the activity of the appellant. It has further been contended that extended period of limitation cannot be invoked with regard to second show cause notice dated 01.05.2009 covering the period April 2004 to November 2006 as the second show cause notice has been issued on the same set of facts which were already in the show cause notice dated 16.06.2005 and therefore, second show cause notice dated 01.05.2009 is clearly time-barred. In this regard, learned advocate has relied upon the following judgments:-
(a) Nizam Sugar Factory vs. CCE 2006 (197) ELT 465 (SC)
(b) CCE vs. Escort Limited 2009 (235) ELT 55 (P&H)
(c) Geotech Foundation & Construction 2008 (224) ELT 177 (SC)
We have heard Shri Tara Prakash, learned Deputy Commissioner (DR) who has reiterated the findings given in the orders-in-original.
Having heard both the sides in detail, we find that two show cause notices, first dated 16.06.2005 and second dated 01.05.2009 have been issued on the same facts of the matter. However, in the first show cause notice, service tax has been demanded under the category of Maintenance or Repair Service while in the second show cause notice the demand has been made invoking extended time proviso alleging suppression of facts etc and service tax has been demanded under the categories Business Auxiliary Service, Manpower Recruitment or Supply Agency Service and Maintenance or Repair Service. To our dismay, we take note of the fact that Adjudicating Authority has decided both the show cause notices on the same date i.e. 28.12.2012 and has confirmed the demand of service tax for the for the same set of activities undertaken by the appellant under two categories of services namely Maintenance or Repair Service and in the second order-in-original under Business Auxiliary Service, Manpower Recruitment or Supply Agency Service, and Maintenance or Repair Service. We are of the opinion that confirmation of demand of service tax for the same activity i.e. manufacturing of Heavy Water of nuclear grade for Department of Atomic Energy under the different categories by the Adjudicating Authority clearly indicates no application of judicious mind and demand has been confirmed in a perfunctory manner without any cogent reasons.
4.2 We take note of the fact that as per agreement dated 18.12.1999, the appellant have been undertaking operation and maintenance of Hazira Ammonia Extension Plant (HAEP for short) which is owned by Government of India, Heavy Water Board under the department of Atomic Energy. The entire purpose of installation and operation of plant of HAEP was for manufacture of Heavy Water by the appellant. The major portion of the consideration which has been paid to the appellant is on the quantity of Heavy Water supplied by the appellant to Heavy Water Board, Department of Atomic Energy. Thus, we take note of the fact that the consideration which were received by the appellant were for operating the Heavy Water plant and production of Heavy Water which was the main activity and the other activities carried out by the appellant were incidental to the main activity and are undertaken for smooth functioning of Heavy Water plant. We find that the appellant has acted in operation and maintenance of Heavy Water plant for generation of Heavy Water which falls under CETH 28.45 Central Excise Tariff Act, 1985 and attracts nil rate of duty.
4.3 The definition of term manufacture as provided under Section 2(f) of Central Excise Act, 1944 is an inclusive definition which says that activity of manufacture and resulted into a new and identifiable product having distinct name, character and use‟. Section 2(d) of Central Excise Act, 1944 provides the definition of excisable goods and says that excisable goods are one which is specified in the first and second schedules of the Central Excise Tariff Act, 1985. We are of the opinion, that appellant is engaged in operation of Heavy Water plant and manufacture of Heavy Water from feed synthesis gas and generation of deuterium. As per the manufacturing process of Heavy Water, feed synthesis gas generated in the ammonia plant of the appellant is transferred to Heavy Water plant where deuterium is extracted from the feed synthesis gas. Such extracted deuterium is further processed in the Heavy Water plant with facilities and generating a distinct product i.e. Heavy Water‟. Thus, we take note of the fact that process of converting deuterium into Heavy Water is nothing but manufacturing of Heavy Water as defined under Section 2(f) of Central Excise Act, 1944. We are also of the opinion that merely because Heavy Water falling under Chapter 28.45 of the Central Excise Tariff Act, 1985 attracts nil rate of duty will not make it non-excisable goods. While coming to this conclusion we take shelter of the Hon‟ble Supreme Court decision in the case of Nandi Printers Pvt. Limited vs. GoI 2001 (127) ELT 645 (SC) wherein the Hon‟ble Supreme Court has held that mere fact that the rate of duty on printed cartons was NIL by reasons of exemption would not make printed cartons non-excisable goods. The same proposition was also considered by Larger Bench of the Hon‟ble Supreme Court in the case of Vazir Sultan Tobacco Company Limited 1996 (83) ELT 3 (SC).
4.4 In the light of above decisions of the Hon‟ble Supreme Court, even if the Heavy Water attracts nil rate of duty, it will be treated as excisable goods and therefore service cannot be levied on the activities carried out by the appellant.
4.5 We also take note of the fact that on the issue of second show cause notice being time-barred, it is clear from the facts of the matter that first show cause notice was issued on 16.06.2005 demanding service tax on the same set of activities for the period 01.07.2003 to 31.03.2004 and the second show cause notice was issued by the department on 01.05.2009 covering the period 2004 to November 2006 invoking extended time proviso under Section 73 of the Finance Act, 1994 on the same set of activities of the operation of Heavy Water plant by the appellant. Since the department was already aware about the activities undertaken by the appellant and the show cause notice has already been issued on 16.06.2005 still they proceeded to issue second show cause notice without providing any reason. We are of the opinion that on this very count also second show cause notice is clearly time-barred and therefore need to be set-aside on the ground of limitation. While forming this opinion we rely upon the law laid down by Hon‟ble Supreme Court in the case of Nizam Sugar Factory vs. Collector of Central Excise, A.P. 2006 (197) ELT 465 (SC).
In view of the above, we are of the opinion that the impugned orders-in-original are without any merit and therefore, we set-aside the same. Accordingly, the appeals are allowed.