2015 (11) TMI 231 - AT - Service Tax

Demand of service tax - activity of preparation of vegetables, fruits by processing the same & packing in consumer packs for their clients. - whether appellant is liable to discharge service tax liability under the category of Business Auxiliary Services or otherwise - Held that - Appellant is preparing the vegetables by sorting, cleaning, boiling and freezing the same and subsequently packing it in unit packings to be sold by their the brand name. The first appellate authority has held that the activity undertaken by the appellant is not in respect of agriculture are in relation to agriculture. - appellant is undertaking the processing of vegetables on behalf of their client. It is settled law that revenue officers cannot argue against the board s circular. In the case in hand, the first appellate authority as well as the authorised representative of the revenue are arguing against the board s clarification as reproduced hereinabove. We do not have any hesitation to hold that such arguments put forth our view the activity of processing the vegetables by the appellant will be in relation to agriculture hence not liable to service tax under business auxiliary services. - impugned order is unsustainable and liable to be set aside - Decided in favour of assessee.

Summary

Issues:
Determining liability to discharge service tax under "Business Auxiliary Services" for processing vegetables and fruits.

Analysis:
The appeal questioned whether the appellant is liable for service tax under "Business Auxiliary Services" for processing vegetables and fruits. The appellant's activity involved preparing vegetables by processing and packing them for clients. The Revenue argued that this activity falls under business auxiliary services, while the appellant claimed it was a manufacturing activity not subject to service tax. The appellant cited a circular dated 26.5.2011 to support their case. The Tribunal noted that the appellant processed vegetables by sorting, cleaning, boiling, freezing, and packing them for sale under their brand name. The first appellate authority ruled that the activity was not related to agriculture, a position supported by the departmental representative. However, the Tribunal disagreed, citing circular 143/12/2011 - ST, which clarified the taxability of processing activities related to agriculture on behalf of clients.

The circular stated that client processing of agricultural produce retains its essential characteristics and should be considered "in relation to agriculture." The circular provided examples of tobacco and raw cashew processing falling under this category. The Tribunal found that the appellant's processing of vegetables for clients aligned with this principle and, therefore, should not be subject to service tax under business auxiliary services. The Tribunal emphasized that revenue officers cannot argue against the board's circular, and in this case, both the first appellate authority and the revenue representative were doing so. Consequently, the Tribunal held that the impugned order was unsustainable and set it aside, allowing the appeal with any consequential relief.

In conclusion, the Tribunal determined that the appellant's processing of vegetables for clients was in relation to agriculture and not liable for service tax under business auxiliary services, based on the principles outlined in the circular. The Tribunal's decision set aside the previous order, providing relief to the appellant in this matter.