SONIC WATCHES LTD. Vs. COMMISSIONER OF C. EX.

JUDGEMENT

(1.) THE scope of Business Auxiliary Services as defined under Section 65(19) of the Finance Act, 1994 (the Act) was expanded to include "the production of goods on behalf of the clients" which does not amount to manufacture under Section 2(f) of the Central Excise Act, 1944. The Appellant is engaged in electroplating (gold plating) of watch straps for various parties such as M/s. Sotex, M/s. HMT Watches Limited, M/s. Timex Watches Limited etc. on job work basis. The premises of the Appellants was visited by the officers of Central Excise on 29 -10 -2004, who conducted enquiries with regard to job work and their liability towards service tax. Thereafter, show cause notice was issued and impugned order has been passed confirming service tax demand of Rs. 29,56,340/ - and imposition of penalty of Rs. 25,42,941/ - under Section 78 of the Act and penalties under Sections 76 and 77 of the Act.

(2.) LEARNED advocate on behalf of the Appellants submitted that the process undertaken by them cannot be considered amounting to production at all. While he is not disputing that the process does not amount to manufacture, it is his contention that the process undertaken by them falls short of "production". He also submitted alternative contention that the definition of term 'Manufacture' under Section 2(f) of the Central Excise Act, includes any process ancillary and incidental to the completion of manufacture and therefore process undertaken can be said to amount to manufacture. Further, he also submitted that the Commissioner has introduced a totally new hybrid category between 'processing' and 'manufacture' and has held that process amounts to production. He also submitted that definition requires production of goods on behalf of the clients to attract levy of service tax, whereas in this case, the production was not on behalf of any client who has client. Therefore the job work undertaken by them is not liable to service tax. Further, he also submitted that no penalty can be imposed in this case since when the officers visited the Appellant's premises, the levy was still new and Appellants were trying to understand the implications. Nevertheless, they had already applied for registration on 28 -10 -2004 and registration certificate was issued on 31 -10 -2004. He submitted that since Appellants failed to explain that they were not liable to pay, the amount was paid on 31 -3 -2005. It is his submission that prior to amendment of definition on 16 -6 -2005, which amended the relevant clause as "production or process of goods for or on behalf of clients", Appellants would be not liable to pay service tax since both the processes 'production' and 'process' attract levy of service tax and whether the activity is for or on behalf of the clients, service tax is required to be paid.

(3.) IN the case of Auto Coats v. CCE (ST), Coimbatore - : 2009 (15) S.T.R. 398 (Tri. - Chennai), the clause "on behalf of the clients" was considered. In that case the appeal was allowed with the following observations :