Case BriefsTribunals/Commissions/Regulatory Bodies

West Bengal Authority for Advance Ruling (AAR): The Bench of Sydney D’Silva and Parthasarathi Dey (Members) addressed an application sought on the classification of the services provided in a way of packing of tea bags and rate of GST thereon.

In the present application, it has been submitted that the process of service undertaken by the applicant (Contract Packer of Tea) involves assembly of materials on machine, including blended tea leaves and other inputs received from the recipient of service. Applicant used to classify it as “packaging service”.

Applicant received a communication from Hindustan Unilever Ltd., one of its recipients of services informing that the service should be taxed under Sl No. 26 (f) of the Rate Notification, which applies to “manufacturing service”.

The issue to be addressed in this application was “Whether the applicant’s services to HUL are classifiable as packaging service or manufacturing service or both?”

The Applicant used to classify it as packaging service under SAC 998540 and charged 18% GST.

“The flow chart as mentioned in the “Agreement” between the applicant and HUL, has the processes undertaken at applicants manufacturing unit and shows that the blended tea received from HUL, after quality control procedure, is passed through hoppers, magnetic grill and mesh, and ends with filling tea leaves into the tea bag pouches and stitching. The tea bags are then subjected to quality control before being packed in cartons, wrapped and put into boxes, stored and delivered to HUL after sample testing.”

In accordance to Section 2(72) of CGST Act, 

“Manufacture” is the processing of raw materials or inputs in any manner that results in the emergence of a new product having a distinct name, character and use.

Consuming tea contained in a tea bag does not require the tea leaves to be taken out of the bag. The tea bags are porous and filled with tea leaves, therefore, are distinct from tea leaves which excludes them from the category of “packaging material”.

Thus, it is evident that the applicant’s service to HUL for manufacturing of tea bags is service for manufacturing a product classified under Tariff item 0902 40 40, where physical inputs are owned by the recipient.

Ruling of the Authority:

Applicant makes a composite supply to Hindustan Unilever Ltd. where the service of manufacturing tea bags from the physical inputs owned by the latter is the principal supply. It is classifiable under SAC 9988 and taxable at 5% rate under Sl No. 26(f) of Notification No. 11/2017-CT (Rate) dated 28/06/2017, as amended from time to time. [Application of Vedika Exports Tea (P) Ltd., In Re,  Case No. 41 of 2018, dated 10-12-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs Excise & Service Tax Appellate Tribunal (CESTAT): This appeal was filed before V. Padmanabhan, Member (Technical) against the decision of Commissioner of Customs who upheld the order of Adjudicating Authority imposing duty on the appellants.

Facts of the case are such that a search was conducted during which Departmental Officer found and seized goods i.e. automobile parts as specified in the 3rd Schedule of the Central Excise Act with brand name ‘VIKING’ and “VIZA’ from both appellant’s premise. Show cause notices were issued by the adjudicating Authority to the appellants after the investigation were concluded. They were alleged with manufacture of goods which did not belong to them and thus were not entitled to the benefit of the Small Scale Exemption. It was stated that they were supposed to pay duty along with interests and penalties. Adjudicating officer’s order was challenged before the Commissioner where it was upheld and hence this appeal before the Tribunal was filed.

Appellants showed their respective trademark registration document that ‘VIKING’ and ‘VIZA’ were registered trademarks of the appellants hence they were entitled to SSI benefit. Appellants contended that respondent seized both the appellants’ goods in a consolidated way which was later denied by respondent. Respondent while negating the contentions of appellants stated that appellant were liable to pay duty as they were involved in activity of packing and affixing brand name which amounts to manufacture of a good and thus they cannot seek the benefit of SSI. They submitted that appellants need to pay duty for goods belonging to other appellant which was found on their premises.

 Tribunal was of the view that appellants were liable to pay duty for those goods labeled with other appellant’s trademark. Both the appellants were given benefit of SSI with respect to the goods under their respective brand names and for goods having brand names of the other appellant they were liable to pay duty. Tribunal ordered Adjudicating authority to requantify the duty demanded. [Vee Kay Enterprises v. Comrr. of Excise, 2018 SCC OnLine CESTAT 870, decided on 24-09-2018]


Case BriefsHigh Courts

Allahabad High Court: A Single Judge Bench comprising of Surya Prakash Kesarwani, J., dealt with a question where petitioner/Assessee was engaged in the manufacturing and sale of sugar and its bagasse. Petitioner was held liable under Section 3-B of the U.P. Trade Tax Act, 1948 on the ground that he had issued a false certificate of declaration.

The facts of the case are that the petitioner was alleged of consuming purchased diesel oil when the manufacturing units were closed. According to the recognition certificate, diesel oil was purchased on concessional rate of tax against form 3 Kha. As per Section 4B of the Act a recognition certificate is provided through which concessional rate of tax is applied in the manufacture of a final product. With regard to the recognition certificate, the petitioner contended that the diesel oil was used for maintenance of machine when the manufacturing units were closed and not for manufacturing a final product. The Tribunal found no basis for this contention as petitioner failed to show how the diesel oil was used in the maintenance of machine. High Court found no error in the findings of tribunal.

Another issue which arose questioned the sale of bagasse on which no tax was paid under Section 13 of U.P. Sugarcane (Purchase Tax) Act, 1961. With regard to this issue, Court was of the view that if on purchase of sugarcane, tax is paid then there is no requirement of paying tax on sale of bagasse as per Act 1961. Since petitioner failed to pay tax on purchase of sugarcane, he was liable to pay tax on sale of bagasse. Court found no merit and therefore this revision was dismissed.[Kanoria Sugar and General Mfg. Co. Ltd v.  CCT,2018 SCC OnLine All 1108, order dated 01-05-2018]