2011 (8) TMI 789 - AT - Service Tax

Demand - Business Auxiliary services - job work - Prima facie, the products emerging after processes undertaken by the applicant which is decaffeinated tea is commercially different from the black tea supplied by the supplier who is another 100% EOU - the processes involved is a chemical process known as solvent extraction method and considering the nature of raw materials, the processes undertaken on the said raw materials and the end-product, we are, prima facie, in agreement with the claim of the applicant that they are undertaking manufacture of excisable goods on job work basis - pre-deposit waived

Summary

Issues:
Service tax liability on job charges for decaffeination process; Claim of manufacturing activity exemption; Applicability of Notification No. 8/2005-S.T.; Interpretation of processes as manufacture; Prima facie justification of service tax demand.

Analysis:
The case involves a 100% Export Oriented Unit (EOU) engaged in manufacturing Spice Oleoresin for export and undertaking the decaffeination process on black tea supplied by another EOU. The Department issued show-cause notices demanding service tax on job charges for decaffeination under 'Business Auxiliary Service'. The applicant contended that decaffeinated tea produced is different from the supplied black tea, intended for specific customers, and complies with US Food and Safety norms. They return decaffeinated tea and caffeine to the supplier for further processing.

The Tribunal considered the processes undertaken by the applicant and the nature of the products. It observed that the decaffeinated tea and caffeine produced were commercially distinct from the black tea supplied. The processes involved chemical extraction methods, indicating manufacturing activity on a job work basis. The Tribunal distinguished a Supreme Court case involving toilet tissue cutting as not applicable, thereby supporting the applicant's claim of manufacturing activity exemption from service tax.

The Tribunal found the service tax demand unjustified prima facie, as the processes undertaken constituted manufacturing and the products were different from the supplied raw materials. Consequently, the Tribunal waived pre-deposit of dues and stayed recovery pending appeal disposal. The decision highlights the distinction between manufacturing processes and mere processing activities for service tax liability determination.

In conclusion, the Tribunal's judgment favored the applicant by recognizing the manufacturing nature of the processes undertaken, leading to the exemption from service tax liability. The decision underscores the importance of analyzing the commercial distinctions between raw materials and end products in determining manufacturing activities for tax purposes.