2026-VIL-210-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Manufacture vs Service, Outsourcing of Work, Intimation to Department - Appellant had undertaken job work for principal for the manufacture of "Polymer Master Batch" on a job work basis - Appellant outsourced part of the work to another job worker. The principal had paid the central excise duty on the manufactured goods. Department issued a show cause notice to the appellant demanding service tax on the processing of goods, which did not amount to manufacture, along with interest and penalty - Whether the processes undertaken by the appellant amounted to manufacture, which was exempted from service tax, or whether the appellant had rendered a taxable service by processing the goods – HELD - The processes undertaken by the appellant amounted to manufacture, which was exempted from service tax. The mere fact that the appellant had outsourced part of the work to its sub-contractor did not mean that the appellant had rendered another service on which it had to pay service tax. The same activity undertaken by the appellant cannot be treated by the department both as manufacture for charging central excise duty (which was paid by the principal manufacturer) and also as a service to demand service tax - Department had accepted the intimation of the arrangement between the appellant and the principal, and the principal had paid the central excise duty on these processes. It is also not disputed that the principal manufacturer had paid central excise duty on these processes. It is, therefore, not correct to say that the same processes which have been accepted by the Department as manufacture to charge central excise duty cannot now be called as not manufacture so as to charge service tax from the appellant - The fact that the appellant had sub-contracted part of the work to its sub-contractor contrary to some clauses of the agreement would also make no difference whatsoever. If there is any violation of any condition of the contract, it is a matter of dispute between the appellant and the principal. The department, as a stranger to the contract, has no locus standi in the matter relating to that contract. Even if the appellant had violated some conditions of the contract, the processes which were actually manufacture cannot turn into a service - the impugned order is set aside and the appeal is allowed
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