2014 (8) TMI 629 - AT - Service Tax

Business Auxiliary Service - Whether process of milling/ grinding of wheat into maida , suji , atta and bran flour would amount to manufacture under Section 2(f) of the Central Excise Act, 1944 - Held that - The various goods viz. maida, sooji, atta and bran produced by the roller flour mills are covered under Chapter 11 and the raw-material Wheat is classifiable under Chapter 10 of CETA, 1985. As the products wheat and wheat flour fall under different Chapters, the activity undertaken by flour mills amount to manufacture and gets covered under the exclusion clause of the definition of Clause 19 of Section 65 of the Finance Act, 1994. In this regard the judgement of Hon ble High Court of Madras in the case of United India Roller Flour Mills Ltd vs Union of India reported in 1980 (9) TMI 89 - HIGH COURT OF MADRAS may please be referred, wherein the imposition of duty on Maida in the Finance Bill 1971 and exemption provided subsequently vide Not. No.162/71 dt 10.08.71 were discussed. Levy of duty on Maida confirms that conversion of wheat into Maida amounts to manufacture to attract levy under Section 3 of the Central Excise Act, 1944. On a perusal of the aforesaid communications, we find that the Chief Commissioner of Customs & Central Excise Coimbatore Zone as well as Director (CX.1), of Ministry of Finance, Department of Revenue had a view that conversion of wheat into wheat products like maida, suji etc., amounts to manufacture. It is noticed that the demand of service for the subsequent period was set aside by the Commissioner (Appeals), Madurai. Hence, the demand of tax, prima facie , is not sustainable. Accordingly, the pre-deposit of tax along with interest and penalty is waived till the disposal of the appeal - Stay granted.

Summary

Issues:
Whether the process of milling/grinding of wheat into various flour products amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944, and whether service tax under "Business Auxiliary Service" is applicable.

Analysis:

Issue 1: Manufacture of Wheat Products
The central issue in this case pertains to whether the process of milling/grinding of wheat into products like "maida," "suji," "atta," and "bran" constitutes "manufacture" under Section 2(f) of the Central Excise Act, 1944. The Revenue argued that this process does not amount to "manufacture" and sought to impose service tax under the category of "Business Auxiliary Service" for the period from April 2007 to March 2012. The Tribunal referred to a previous case involving M/s. Naga Ltd. where a stay order was granted based on the Chief Commissioner's letter and the Board's clarification on the matter. The Tribunal highlighted that the process of milling/grinding wheat had drawn the attention of the CBEC, with the Commissioner of Central Excise, Madurai, issuing Show Cause Notices to certain flour mills. However, the Tribunal noted that the Chief Commissioner of Customs & Central Excise Coimbatore Zone and the Director of Ministry of Finance, Department of Revenue, viewed the conversion of wheat into various flour products as amounting to "manufacture." Consequently, the Tribunal waived the pre-deposit of tax, interest, and penalty, staying the recovery until the appeal's disposal.

Issue 2: Legal Interpretation and Precedents
The Tribunal delved into legal interpretations and precedents to determine whether the activity of milling/grinding wheat into flour products falls under the definition of "manufacture." It referenced the judgment of the Hon'ble High Court of Madras in the case of United India Roller Flour Mills Ltd vs Union of India, which discussed the imposition of duty on "maida" and confirmed that the conversion of wheat into "maida" amounts to manufacture under Section 3 of the Central Excise Act, 1944. Additionally, the Tribunal differentiated the case of M/s. Crane Betel Nut Power Works, emphasizing that the process of adding or mixing certain ingredients to betel nut now constitutes manufacture under the amended Chapter note. The Tribunal also highlighted circulars and letters from the Board and Ministry of Finance, Department of Revenue, supporting the view that the conversion of wheat into flour products qualifies as manufacture, thus exempting it from service tax under "Business Auxiliary Service."

Conclusion:
In conclusion, the Appellate Tribunal CESTAT Chennai examined the issue of whether the milling/grinding of wheat into various flour products amounts to "manufacture" under the Central Excise Act, 1944, and the applicability of service tax under "Business Auxiliary Service." By considering legal interpretations, precedents, and official communications, the Tribunal found in favor of treating the conversion of wheat into flour products as manufacture, thereby waiving the pre-deposit of tax, interest, and penalty pending the appeal's disposal.