Sl.
No",Service Recipient,Activity undertaken by the Appellant,"Service Tax (in
Rs.)
1.,ONGC Assam,"Construction of ETPs in the oil fields of
ONGC, registered under the Mines Act,
1952","26,49,982
2.,ONGC Ahmedabad,,"2,06,54,736
3.,"National Building
Construction Company",Construction of Sewage Treatment Plant,"1,74,839
Installation/erection Hook-up, Testing, Pre-commissioning, Commissioning for Construction of Six Effluent Treatment Plant at Ahmedabd",,,
and Anlkleshwar assets, India and 7 years of operation and maintenance responsibility with details further described in part-IV of Bidding",,,
Document.,,,
(b) Oil & Natural Gas Corporation Ltd., Assam:- As per the contract agreement the service recipient is Oil & Natural Gas Corporation Ltd.,",,,
Assam and UEM is the service provider. As per the agreement the nature of work is Survey (per-engineering, preconstruction/ pre-",,,
installation and post installation), Design, Detailed Engineering, Procurement & supply, Transportation, Fabrication, Installation/erection",,,
Hook-up, Testing, Pre-commissioning, Commissioning for Construction of One Effluent Treatment Plant and three Effluent Treatment Plant",,,
cum WIPs at Assam assets, India and 7 years of operation and maintenance responsibility with details further described in part-IV of",,,
Bidding Document.,,,
75. The noticee has claimed the exemption for Sl. No. 13(d) of exemption Notification No. 25/2012-S.T. dated 20-06-2012 in the above,,,
mentioned both projects. Serial No. 13(d) of the exemption Notification is reproduced below:,,,
“Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation,",,,
or alteration of a pollution control or effluent treatment plant, except located as a part of a factory; or a structure meant for funeral, burial",,,
or cremation of deceasedâ€,,,
76. On going through the nature of job defined in the contract with the ONGC i.e .Surveys (per-engineering, pre-construction/ pre-",,,
installation and post-installation), Design, Detailed Engineering procurement & supply, Transportation, Fabrication, Installation/ erection",,,
Hook-up, Testing, Pre-commissioning, Commissioning for Construction are not covered in Sl. No. 13(d) of the exemption Notification",,,
mentioned above. It is hold that the benefit of exemption is not allowed if the service has been provided in the factory area. I find that,,,
definition of factory has not been defined in the notification No. 25/2012-S.T. dated 20-06-2012, however that the definition of factory has",,,
been defined under Section 2(e) of the Central Excise Act, 1944 as follows:-",,,
“factory means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are",,,
manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried",,,
on or is ordinarily carried onâ€.,,,
77. The noticee submitted the letter dated 10.09.2012 issued by ONGC that the operation in the oil failed falls under the Mines Act, 1952",,,
and does not falls under Factory Act, 1948. I find that the extraction of crude oil is also a part of the manufacturing activities and therefore",,,
as per definition of the Factory it falls within a factory premises. The benefit of the exemption Notification cannot be available to the noticee,,,
on the ground that the operation in the oil filed comes under the Mines Act, 1952. For Service Tax Rules/ The Finance Act, 1994, the",,,
Factory Act, 1948 is not relevant.â€",,,
(emphasis supplied),,,
10. The findings in regard to the service at Serial No. 3, namely construction of STPs for NBCC are contained in paragraphs 78 to 80 of the order",,,
passed by the Commissioner. The benefit of the Notification at Serial No. 13(d) has been denied for the reason that the contract was for sewerage,,,
treatment plant, which is not for pollution control. The findings are reproduced below:",,,
“78. National Building Construction Company Ltd. (NBCC)-: As per the contract agreement the service recipient is National Building,,,
Construction Company Ltd. (NBCC) and UEM is the service provider. As per the agreement the nature of work is Design, construction,",,,
Erection, commissioning, Trial run including one year operation and maintenance works of Sewerage treatment plant on turnkey basis",,,
based on SBR Technology with PLC, SCADA system in Roorkee campus of IIT Roorkee (3.2 MLD) and DPT Saharanpur campus of IIT",,,
Roorkee (0.5 MLD).,,,
79. The noticee has claimed the exemption for Sl. No. 13(d) of exemption Notification No. 25/2012-S.T. dated 20.06.2012 in the above,,,
mentioned both projects. Serial No. 13(d) of the exemption Notification is reproduced below:,,,
“Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation,",,,
or alteration of a pollution control or effluent treatment plant, except located as a part of a factory; or a structure meant for funeral, burial",,,
or cremation of deceasedâ€,,,
80. On going through the documents submitted by the, I observe that they were awarded to Design, construction, erection, commissioning,",,,
trial run including one year operation & maintenance works of sewerage treatment plant on turnkey basis on SBR technology with PLC,",,,
SCADA system in Roorkee Campus of IIT Roorkee (3.2 MLD and DPT Saharanpur campus of IIT Roorkee (0.5 MLDI ).f ind that the,,,
exemption is available for a Pollution control and the M/s. UEM India Ltd., nature of contract meant for sewerage treatment plant does not",,,
fulfil the requirement of the Notification.â€,,,
(emphasis supplied),,,
11. Shri B.L. Narasimhan, learned counsel for the appellant made the following submissions under the following heads:",,,
A,,,
Order is beyond the show cause notice,,,
(i) Since the proposal in the show cause notice was solely on the ground that the appellant was rendering commercial construction services, the",,,
impugned order has gone beyond the show cause notice by confirming the demand on a wholly different footing, namely that the ETPs constructed by",,,
the appellant for ONGC were located in a factory and the STP constructed for NBCC did not qualify as an effluent treatment plant. To support this,,,
contention that an order cannot go beyond the show cause notice, reliance has been placed on the following decisions:",,,
a) Reckitt & Coleman of India Ltd. vs. CCE, 1996 (88) E.L.T. 641 (S.C.); and",,,
b) Toyo Engineering India Limited vs. CC, Mumbai, 2006 (201) E.L.T. 513 (S.C.).",,,
B,,,
ETPs Constructed for ONGC,,,
(i) The only question is whether the oil fields of ONGC, which are registered under the Mines Act, would qualify as a 'factory'. As per section 65B of",,,
the Finance Act, in a situation where a word or expression is not defined under the Finance Act, reference may be drawn to the Excise Act under",,,
which a factory is a premise where ‘goods are either manufactured’ or a ‘process in relation to their manufacturing is undertaken’.,,,
Extraction of crude oil does not qualify as manufacture, as the activity involving extraction of natural resources would quality as ‘production’,",,,
which is independent and different to manufacture. In this connection, reliance has been placed on the following decisions:",,,
a) Commissioner of Income Tax vs. NC Budharaja & Co., (1993) 70 Taxman 312 (Supreme Court);",,,
b) Chowgule and Co. Private Limited vs. Union of India, 1980 (11) TMI 61 (Supreme Court);",,,
c) Commissioner of Income Tax vs. Singareni Colleries Limited, 1995 (11) TMI 36- Andhra Pradesh High Court;",,,
d) Commissioner of Income Tax vs. Sesa Goa Limited, (2005) 142 Taxman 16 (Supreme Court);",,,
e) Commissioner of Income Tax vs. Sesa Goa Limited, DO Bandodkar and Songs Private Limited; and Chowgule and Co. Limited, 2003 (7) TMI 30-",,,
Bombay High Court; and,,,
f) Chrestien Mica Industries Limited vs. State of Bihar and Another, (1961) 12 STC 150.; and",,,
(ii) The appellant has constructed ETPs in the mines of ONGC, where ONGC is undertaking the exploration and extraction of oil and natural gas.",,,
Thus, it can reasonably be inferred that these premises are mines, which are governed by the Mines Act and mines cannot be equated to a",,,
‘factory’.,,,
C,,,
STPs Constructed for NBCC,,,
(i) An effluent treatment plant would also include STPs and so benefit of exemption would be available in respect of the projects undertaken for,,,
NBCC; and,,,
(ii) STP is set up for the purpose of removing pollutants and contaminants from wastewater, primarily from household sewage. It includes various",,,
processes so as to obtain clean and environment safe treated waste water. Hence, STP may be understood as a Wastewater Treatment Plant;",,,
D,,,
Other Submissions,,,
(i) The appellant is entitled to cum-tax benefit; and,,,
(ii) As the order has dropped majority of the demands, it shows bona fide on the part of the appellant and, therefore, no penalties are imposable.",,,
12. Shri R.K. Majhi, learned Authorised Representative for the respondent made the following submissions:",,,
(i) The order has not travelled beyond the show cause notice. The appellant had knowledge of charges and they replied accordingly. In this connection,,,
reliance has been placed on the judgment of the Delhi High Court in Commissioner of Service Tax vs. ICT Ltd, 2014 (36) STR 481 (Del.);",,,
(ii) The contention of the appellant that it would be entitled to exemption under Serial No. 13(d) of the Notification dated 20.06.2012 is not correct as,,,
oil fields of ONGC would qualify as a ‘factory’; and,,,
(iii) The effluent treatment plant will not include STPs and so the exemption under Serial No. 13(d) of the Notification dated 20.06.2012 would not be,,,
available to the appellant.,,,
13. The submissions advanced on behalf of the appellant and the Department have been considered.,,,
A,,,
Order is beyond the show cause notice,,,
14. The first contention raised by the learned counsel for the appellant would be examined, if considered necessary, after the second and the third",,,
submissions relating to ETPs constructed for ONGC and STPs constructed for NBCC are decided, because in case these two matters are decided in",,,
favour of the appellant it may not be necessary to examine whether the order went beyond the show cause notice.,,,
B,,,
ETPs constructed for ONGC,,,
15. As noticed above, the demand for ETPs constructed for ONGC has been confirmed for the reason that the appellant has constructed the ETPs at",,,
the oil fields of ONGC, which qualify as factory, and would, therefore, not be exempt under Serial No. 13(d) of the Notification dated 20.06.2012.",,,
16. It is seen that the exemption is available under the Notification dated 20.06.2012 under Serial No. 13(d) for construction of an ETP, except when",,,
located as a part of a factory. There is no doubt that the appellant was constructing ETPs at the location of the oil exploration wells (on-shore) of,,,
ONGC. The issue that needs to be decided is whether the oil fields of ONGC, which are registered under the Mines Act, would qualify as a",,,
‘factory’. The term ‘factory’ has neither been defined under the Notification nor under the Finance Act, However, section 65B of the",,,
Finance Act provides that in a situation where a word or expression is not defined under the Finance Act, reference may be drawn to the Central",,,
Excise Act, 1944, the Excise Act.",,,
17. Section 2(e) of the Excise Act defines ‘factory’ as under:,,,
“(e) “factory†means any premises, including the precincts thereof, wherein or in any part of which excisable goods are",,,
manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried",,,
on or is ordinarily carried on.â€,,,
18. A close reading of section 2(e) of the Excise Act would show that the factory can be divided into two types:-,,,
(a) Premises (or precincts thereof) where excisable goods are manufactured; or,,,
(b) Premises (or part thereof) where a manufacturing process connected with the production of goods is carried out.,,,
19. Thus, a factory is a premise where ‘excisable goods are either manufactured’ or a ‘process in relation to their manufacturing is",,,
undertaken’. Extraction of crude oil would not qualify as ‘manufacture’ as the activity involving extraction of natural resources would,,,
qualify as ‘production’, which is independent and different from ‘manufacture’.",,,
20. Undertaking of an activity which results in emergence of a new commodity may amount to ‘manufacture’, such as in the case of",,,
manufacturing of medicines or cosmetics or textile. However, extracting of natural resources, including crude oil would amount to ‘production’",,,
and not ‘manufacture’.,,,
21. In NC Budharaja, the Supreme Court explained the difference between ‘production’ and ‘manufacture’ and observed that even",,,
though ‘manufacture’ would necessarily amount to ‘production’, it is not necessary that ‘production’ would always tantamount to",,,
manufacture. The relevant portion of the decision is reproduced below:,,,
“In short, the limited question is whether the construction of a dam to store water (reservoir) can be characterised as amounting to",,,
manufacturing or producing an article or articles, as the case may be. The words ‘manufacture’ and ‘production’ have",,,
received extensive judicial attention both under this-Act as well as Central Excise Act and the various Sales Tax Laws. The word,,,
‘production’ has a wider connotation than the word ‘manufacture’. While every manufacture can be characterised as,,,
production, every production need not amount to manufacture.â€",,,
22. Reference can also be made to the decision of the Supreme Court in Chowgule. The dispute was whether the goods purchased by the assessee,,,
would qualify as goods purchased for use in the ‘manufacturing’ process of goods. The assessee was undertaking mining of ore, which was",,,
washed, screened, transported, and mixed with different ores to arrive at a particular specification. The Supreme Court held that the process",,,
undertaken by the assessee would not amount to ‘manufacture’. The relevant portion of the decision is reproduced below:,,,
“5. The test that is required to be applied is: does the processing of the original commodity bring into existence a commercially different,,,
and distinct commodity? On an application of this test, it is clear that the blending of different qualities of ore processing differing chemical",,,
and physical composition so as to produce ore of the contractual specifications cannot be said to involve the process of manufacture, since",,,
the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended,,,
together. What is produced as a result of blending is commercially the same article, namely, ore, though with different specifications than",,,
the ore which is blended and hence it cannot be said that any process of manufacture is involved in blending of ore.â€,,,
23. In Singareni, the Andhra Pradesh High Court examined whether winning or excavation of coal from the mines amounted to production or",,,
manufacture. The High Court, after placing reliance on the decision of the Supreme Court in N.C. Budharaja, held that the mining or excavation of",,,
coal would qualify as ‘production’. The relevant portion of the judgment is reproduced below:,,,
“In Webster's New International Dictionary, the word ""produce"" is defined as ""something that is brought forth or yielded either naturally",,,
or as a result of effort and work"". In Shorter Oxford English Dictionary, the following meaning is given: ""To bring forward, bring forth or",,,
not; to bring into being or existence"". The meaning given in Black's Law Dictionary to the expression ""produce"" is ""To bring forward; to",,,
show or exhibit; to bring into view or notice; to bring to the surface"".",,,
Applying the principle of interpretation spelt out by the Supreme Court in the aforementioned decision and the ordinary meaning of the word,,,
produce"" as disclosed by the dictionaries and by its ordinary connotation, we have no doubt in our mind that the activity of winning or",,,
excavating the coal from the mines can be aptly described as production activity. It is common to use the expression that the coal or ore is,,,
produced from the mine and the statistics of total production of coal or other minerals are required to be given under the statutory,,,
provisions governing mines and minerals.â€,,,
(emphasis supplied),,,
24. In Sesa Goa, the Supreme Court held that extraction of iron ore would amount to ‘production’. However, the Supreme Court had not",,,
addressed the question as to whether extraction of iron ore would amount to ‘manufacture’.,,,
25. In Chrestien Mica, the Supreme Court held that the process of mining mica would amount to ‘production’.",,,
26. Learned Authorised Representative appearing for the Department however, placed reliance upon the decision of the Supreme Court in Vikram",,,
Cement vs. Commissioner of Central Excise, Indore, 2006 (197) E.L.T. 145 (S.C.) and the decision of the Andhra Pradesh High Court in Ultra Tech",,,
Cement Ltd. vs. Commissioner of Central Excise, Hyderabad, 2014 (308) E.L.T. A121 (A.P.) to contend that captive mines are integral part of",,,
factory.,,,
27. In Vikram Cement, the Supreme Court observed that Modvat/CENVAT credit on capital goods, if the mines are captive mines so that they",,,
constitute one integrated unit together with the concerned cement factory, will be available to the assessee.",,,
28. In Ultra Tech Cement, the Andhra Pradesh High Court followed the decision of the Supreme Court in Vikram Cement.",,,
29. The decision of the Supreme Court does not hold, as contended by the learned Authorised Representative, that captive mines are integral part of",,,
the factory.,,,
30. Learned Authorised Representative appearing for the Department also placed reliance upon the decision of the Supreme Court in Collector of,,,
Central Excise vs. Rajasthan State Chemical Works, 1991 (55) E.L.T. 444 (S.C.). The exemption under a Notification was available only when the",,,
goods were manufactured without the aid of power at any stage of a process. The Supreme Court examined what activity would amount to,,,
‘process’ in or ‘in relation to manufacture of goods’ for the application of the Notification. It is in this context that the Supreme Court,,,
observed as follows:,,,
11. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and",,,
manipulation. Naturally, manufacture is the end-result of one or more processes through which the original commodities are made to pass.",,,
The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of",,,
processing at each stage. With each process suffered the original commodity experiences a change. Whenever a commodity undergoes a,,,
change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it",,,
is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the,,,
original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place.,,,
12. Manufacture thus involves series of processes. Process in manufacture or in relation to manufacture implies not only the production but,,,
the various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various,,,
processes to which the raw material is subjected to, manufactured product emerges. Therefore, each step towards such production would be",,,
a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that,,,
but for that process manufacture or processing of goods would be impossible or commercially inexpedient, that process is one in relation to",,,
the manufacture.,,,
13. The natural meaning of the word `process’ is a mode of treatment of certain materials in order to produce a good result, a species of",,,
activity performed on the subject-matter in order to transform or reduce it to a certain stage. According to Oxford Dictionary one of the,,,
meanings of the word `process’ is “a continuous and regular action or succession of actions taking place or carried on in a definite,,,
manner and leading to the accomplishment of some result.†The activity contemplated by the definition is perfectly general requiring only,,,
the continuous or quick succession. It is not one of the requisites that the activity should involve some operation on some material in order to,,,
its conversion to some particular stage. There is nothing in the natural meaning of the word `process’ to exclude its application to,,,
handling. There may be a process which consists only in handling and there may be a process which involves no handling or not merely,,,
handling but use or also use. It may be a process involving the handling of the material and it need not be a process involving the use of,,,
material. The activity may be subordinate but one in relation to the further process of manufacture.,,,
16. A process is a manufacturing process when it brings out a complete transformation for the whole components so as to produce a,,,
commercially different article or a commodity. But, that process itself may consist of several processes which may or may not bring about",,,
any change at every intermediate stage. But the activities or the operations may be so integrally connected that the final result is the,,,
production of a commercially different article. Therefore, any activity or operation which is the essential requirement and is so related to",,,
the further operations for the end-result would also be a process in or in relation to manufacture to attract the relevant clause in the,,,
exemption notification. In our view, the word `process’ in the context in which it appears in the aforesaid notification includes an",,,
operation or activity in relation to manufacture.,,,
(emphasis supplied),,,
31. Thus, what follows from the above decisions is that there is a distinction between ‘production’ and ‘manufacture’ and extraction of",,,
natural resources (including crude oil) would amount to ‘production’ and not ‘manufacture’.,,,
32. Keeping in mind the aforesaid principles, it has to be determined whether a premise where only production takes place, would qualify as a factory.",,,
As noticed above, a factory would include a premise where excisable goods are manufactured or where a manufacturing process in connection with",,,
production of goods is carried out.,,,
33. Thus, when the activity in relation to extraction of natural resources does not amount to manufacture the first part of the definition of factory",,,
would not be applicable. The scope of the second part which includes a manufacturing process in connection with production of goods caters to post-,,,
production processes which are in relation to ‘manufacture’. This would include activities such as washing of coal; or withering of tea leaves; or,,,
refining of crude oil. This would be a manufacturing process, which is in connection with production.",,,
34. The definition of ‘factory’ caters to manufacturing processes in respect of both, manufactured and ‘non-manufactured goods’. In",,,
case of manufactured goods, the premise where the manufacturing activity is undertaken would qualify as a factory. In case of non-manufactured",,,
goods such as natural resources, the premises where the post-production processes take place towards making the produce commercially viable would",,,
qualify as a factory.,,,
35. It, therefore, follows that the oil fields of ONGC, where only extraction of crude oil takes places, would not qualify as a ‘factory’.",,,
36. The Commissioner, therefore, committed an error in denying the benefit under Serial No. 13(d) of the Notification dated 20.06.2012.",,,
C,,,
STPs Constructed for NBCC,,,
37. In regard to the STPs constructed by the appellant for NBCC, the exemption under Notification dated 20.06.2012 has been denied for the reason",,,
that the exemption is available only in respect of ‘pollution control plants’ and ETPs, and since STP is neither a pollution control plant nor an",,,
ETP, the benefit would not be available to the appellant.",,,
38. It is a fact that the STP is set up for the purpose of removing pollutants and contaminants from wastewater, primarily from household sewage. It",,,
includes various processes so as to obtain clean and environment safe treated waste water. Hence, STP may be understood as a Wastewater",,,
Treatment Plant.,,,
39. Oxford Dictionary of English (Third Edition)s defines ‘sewage’ as ‘waste water and excrement conveyed in severs’.,,,
40. English Dictionary for Advanced Learners defines ‘sewage’ as ‘sewage is waste matter such as faeces or dirty water from homes,,,
and factories, which flows away through sewers’.",,,
41. To understand whether STP would also be covered under the scope of ETP, it is necessary to find out the meaning of the term ‘effluent’.",,,
42. Cambridge Dictionary defines ‘effluent’ as under:,,,
“liquid waste that is sent out from factories or places where sewage is dealt with, usually flowing into rivers, lakes, or the sea.â€",,,
43. The Merriam-Webster Dictionary defines ‘effluent’ as follows:,,,
“effluent noun,,,
Definition of effluent (entry 2 of 2),,,
: something that flows out: such as,,,
a: an outflowing branch of a main stream of lake,,,
b: waste material (such as smoke, liquid industrial refuse, or sewage) discharged into the environment especially when serving as a",,,
pollutantâ€,,,
44. The Oxford Dictionary of English (Third Edition), defines ‘sewage’ as follows:",,,
“Liquid waste or sewage discharged into a river or the sea:,,,
industrial effluentâ€,,,
“Contamination with trade effluentsâ€,,,
45. It follows that ‘effluent’ means any waste material which is discharged into the environment (lake or river), including sewage. A treatment",,,
plant for management of effluent would, therefore, also include a sewage treatment plant.",,,
46. The Commissioner failed to appreciate the purpose of both the treatment processes. The exemption benefit provided by Notification dated,,,
20.06.2012 at Serial No. 13(d) would, therefore, be available to the appellant.",,,
47. In this view of the matter, it would not be necessary to examine the contention raised at ‘A’ by the learned counsel for the appellant that",,,
relates to the order being beyond the show cause notice.,,,
48. Thus, for the reasons stated above, the Commissioner committed an illegality in denying the benefit of the Notification dated 20.06.2012 at Serial",,,
No. 13(d) to the appellant for ETPs constructed for ONGC and the STPs constructed for NBCC. The impugned order dated 27.10.2015 passed by,,,
the Commissioner, therefore, cannot be sustained and is set aside. The appeal is, accordingly, allowed.",,,
(Order Pronounced on 12.08.2021),,,
