Letter [F.No.137/125/2011-ST], dated 27-2-2012, On Service Tax liability on Tyre Retreading Activity

On Service Tax liability on Tyre Retreading Activity

Issue: Whether the activity is manufacture under Central Excise or Service with service Tax liability.

Facts

1. Rethreading of tyres is mentioned in CET Act, which may qualify them as excisable goods. However it does not satisfy, the additional requirement, as per section 3 of the CEA as to the goods to have been produced or manufactured in India.

2. In the case of M/s Ahmedabad Electricity Co Ltd  the observations of Hon'ble Supreme Court  is relevant.

 Some of the observations as made in this judgment are reproduced below:

“...Therefore, simply because goods find a mention in one of the entries of the First Schedule does not mean that they have become liable for payment of excise duty. Goods have to satisfy the test of being produced or manufactured in India. It is settled law that excise duty is a duty levied on manufacture of goods. Unless goods are manufactured in India, they cannot be subjected to payment of excise duty. There is no merit in the argument that simply because a particular item is mentioned in the First Schedule, it becomes eligible to excise duty."

3.Thus, a mere mention in the Central Excise Tariff Act of "Retreading of Tyres" does not make the activity of Retreading of Tyres excisable, since the test of production or manufacture has to be also satisfied.

In this context, the judgment of Hon'ble Supreme Court in the case of M/s P.C. Cheriyan v. Mst. Barfi Devi is relevant. In the said judgment, Hon'ble Supreme Court has observed that-

"The retreading of old tyres does not bring into being a commercially distinct or different entity. The old tyre retains its original character, or identity as a tyre. Retreading does not completely transform it into another commercial article, although it improves its performance and serviceability as a tyre. Retreading of old tyres is just like resoling of old shoes."

4. Though this judgment is given in the context of Transfer of Property Act, however, the basic principle behind "manufacture" of coming into existence of a commercially different and distinct entity is equally applicable to Central Excise Act and has been relied upon by the Tribunal in certain cases while interpreting 'manufacture' under section 2(F) of the Central Excise Act.

5. Thus, retreading of tyres is covered under the ambit of the service 'Management Maintenance & Repair Service' and is liable to payment of service tax.