2014 (6) TMI 523 - AT - Service Tax

Demand of service tax - processing of tobacco leaves - whether the process are in relation to agriculture produce - Notification No. 14/2004-S.T., dated 10-9-2004 - Held that - All these operations according to the appellant is in relation to agriculture. In terms of Notification No. 14/2004-S.T., dated 10-9-2004 it was clarified that processing of above goods is in relation to agriculture and shall be exempted from the purview of Service Tax. The said notification underwent amendment by further Notification No. 19/2005, dated 7-6-2005, without altering the substratum of exemption aspect. When further confusion came up, Central Board of Customs & Excise issued Circular No. 143/12/2011-S.T., dated 26-5-2011, clarifying that the activity of processing of tobacco for and on behalf of the client relates to agriculture. Accordingly the appellant has no Service Tax liability. - Decided in favour of assessee.

Summary

Issues:
1. Whether the processing of tobacco leaves amounts to manufacture or is related to agriculture produce.
2. Whether GTA service availed in relation to agriculture produce is exempt from Service Tax.
3. Disagreement between the appellant and Revenue regarding the activity's relation to agriculture.
4. Consideration of waiver of pre-deposit of demand during the pendency of appeals.

Analysis:
1. The judgment delves into the processing of tobacco leaves in stages to prevent damage, softening the leaves, and separating the stem for further processing. The appellant argues that these operations are related to agriculture. The Government clarified through notifications and circulars that such processing is exempt from Service Tax as it pertains to agriculture produce. The Tribunal concurs with this view, emphasizing the exemption under Notification No. 14/2004-S.T. and subsequent amendments, along with Circular No. 143/12/2011-S.T., thereby relieving the appellant of Service Tax liability.

2. The appellant contends that the GTA service availed in connection with agriculture produce should also be exempt from Service Tax. This argument aligns with the overarching theme of exemption for activities related to agriculture, as established by the notifications and circulars discussed in the judgment. The Tribunal may consider this aspect in conjunction with the primary issue of processing tobacco leaves in relation to agriculture.

3. A disagreement arises between the appellant and Revenue regarding the activity's classification in relation to agriculture. While the appellant asserts that the processing is linked to agriculture and should be exempt from Service Tax, the Revenue supports the adjudication ruling that post-agriculture activities are taxable. This conflict underscores the need for a clear interpretation of whether the processing of tobacco leaves falls within the ambit of agriculture-related activities for the purpose of taxation.

4. In light of the Government's intention to exempt the sector from the levy of Service Tax, the Tribunal deems it unjust to impose a pre-deposit requirement on the appellants during the appeal process. Considering the potential hardship such a demand could cause, the Tribunal opts to waive the pre-deposit of the demand for all three stay applications. This decision reflects a balance between tax compliance and mitigating undue financial burden on the appellants during the legal proceedings.