2010 (1) TMI 630 - AT - Service Tax

Packaging activity amounting to manufacture - The Larger Bench judgment in the case of Maa Sharda Wine Traders v. Union of India (2008 -TMI - 34140 - MADHYA PRADESH HIGH COURT), held that packaging and bottling of liquor is covered by the definition of manufacture as defined in Section 2(f) of Central Excise Act, 1944 and will not attract any service tax liability - demand set aside - decided in favor of assessee.

Summary

Issues:
Interpretation of packaging activity services for country liquor manufacturing and supply.

Analysis:
The case involved three appeals concerning the liability of the appellants to pay service tax on activities related to bottling, labelling, affixing hologram stickers, and sealing glass bottles of country liquor. The Revenue argued that these activities constituted "packaging activity services" and were subject to service tax under Section 65(76)(b) from June 16, 2005. The appellants contended that these activities did not amount to packaging under the definition as they did not involve excisable goods. The adjudicating authority, citing a High Court judgment, held that the appellants were service providers and liable to pay service tax.

During the adjudication, the appellants raised various arguments, but the key issue was whether the activities constituted manufacturing under Section 2(f) of the Central Excise Act, 1944. The Commissioner relied on the Vindhyachal Distilleries case, which held that such activities attracted service tax. However, a subsequent Larger Bench judgment in the Maa Sharda Wine Traders case overturned the Vindhyachal decision. The Larger Bench ruled that packaging and bottling of liquor fell within the definition of manufacture and did not attract service tax liability.

The Tribunal, following the Larger Bench judgment, held that the activities of packaging and bottling of liquor were part of the manufacturing process as defined in the Central Excise Act. As the issue had been conclusively decided by the Larger Bench of the High Court, the earlier judgment in the Vindhyachal case was overruled. Consequently, the Tribunal set aside the impugned order and allowed all three appeals in favor of the appellants, granting them consequential relief.

In conclusion, the Tribunal's decision clarified that packaging and bottling activities for country liquor manufacturing were integral to the manufacturing process and not subject to service tax. The judgment emphasized the interpretation of the definition of manufacture under the Central Excise Act and the exclusionary facet of packaging activities from service tax liability.