Packaging of Goods is ‘Part of Manufacture’, Service Tax not Leviable: CESTAT

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In the case between M/s. Narain Packaging vs. Commissioner of Service Tax, Central, Excise and Service Tax Appellate Tribunal (CESTAT) declared that packaging of goods are part of manufacture for which, service tax is not leviable.

Assessee Company in the present case is engaged in the business of manufacturing of paper and they also undertaken the activity of packaging in the premises of the clients.

During the assessment proceedings both lower authorities such as the Assessing Officer (AO) and CIT (A) observed that the activity of packaging undertaken by the Assessee during the course of manufacturing of paper would be liable to service tax.

Before the authorities, the counsel for the Assessee Advocate Rinki Arora submitted that such activity is incidental to ‘manufacture’ and as such, it is excluded from the tax entry for ‘packaging activity’ under section 65 (76 b) of the Finance Act, 1994 and without packaging of the paper made by the client, the same cannot be marketed and hence, the same is a ‘part of manufacture’ in terms of section 2(f) of the Central Excise Act, 1994 and not liable to service tax.

However, the Revenue refused to accept the contention of the Assessee and accordingly passed an order against the Assessee. Thereafter, the Assessee approached the Tribunal on appeal.

After analyzing the above narrated facts and circumstances, the Tribunal comprising President Justice Dr. Satish Chandra and Technical Member B Ravichandaran held that the statutory definition of packaging activity for service tax levy is “packaging activity” means packaging of goods including pouch filling bottling, labeling or imprinting of the package, but does not include any packaging activity that amounts to „manufacture‟ within the meaning of clause (f) of section 2 of the Central Excise Act, 1944. The Tribunal further observed that “engaged in packing activity in the premises of clients.

The cut size paper manufactured by M/s. J K Paper were given to the appellant direct and using their packing machine the appellant undertakes the wrapping, packing in box, strapping and returns the completed goods back to client. These operations are inside the manufacturing premises of the client.

While analyzing the facts it can be realized that the activity of packaging is incidental to manufacture and the Tribunal concluded the issue by holding that activities undertaken by the appellant in the manufacturing premises of client are excluded from service tax liabilities.

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