2020 (2) TMI 1449 - AT - Service Tax

Nature of Activity - manufacture or service - Process amounting to manufacture or not - activity of conversion of various spices into powder form out of the raw material supplied - Business Auxiliary services or not - divergent views - HELD THAT - As there are contrary decisions of this Tribunal, therefore it would be in the interest of justice to refer the matter to Larger Bench of this Tribunal to decide the following issue (a) Whether the activity of crushing, pulverising, converting and packing of spices into powder form amount to manufacture or not? (b) If not, whether service tax is payable under the category of Business Auxiliary Services or not? The Registry is directed to place the matter before the Hon ble President to examine the issue for constituting Larger Bench to decide the issue.

Summary

Issues involved: Determination of whether the activity of crushing, pulverising, converting, and packing of spices into powder form amounts to manufacture; and if not, whether service tax is payable under the category of 'Business Auxiliary Services'.

Analysis:

1. Manufacture of spices into powder:
The appellant argued that the process of crushing, grinding, and packing of powder constitutes manufacture under Section 2(f) of the Central Excise Act, 1944. They contended that the process results in a new and distinct product with different characteristics and usage. The appellant also emphasized that the CBEC Circular dated 16-3-2000, dealing with the classification of turmeric powder, is not applicable to their case. They further asserted that the extended period of limitation should not be invoked. Additionally, they relied on a decision by the Learned Commissioner (Appeals) in their favor for a subsequent period, where it was held that their activity amounts to manufacture.

2. Revenue's argument and legal precedents:
On the contrary, the Revenue relied on the CBEC Circular dated 16-3-2000 to argue that there is no manufacturing activity involved, and no new products emerge from the process. They also cited a decision by the Tribunal in a similar case to support their stance that crushing chilli to make chilli powder does not amount to manufacture. The Revenue contended that the appellant is liable to pay service tax under 'Business Auxiliary Services'.

3. Comparison with legal precedents:
In response to the Revenue's argument, the appellant pointed out that the legal precedents cited by the Revenue are not directly applicable to their case. They highlighted differences in the facts and outcomes of cases such as Crane Beetle Nut Powder Works v. Commr. and Krishna Chander Dutta (Spice) Pvt. Ltd. v. Commercial Tax Officer. The appellant argued that their process of crushing, pulverising, and making powder of raw spices results in a new product with distinct characteristics, unlike the situations in the cited cases.

4. Decision and referral to Larger Bench:
After considering the arguments from both sides and noting the conflicting decisions of the Tribunal, the bench decided to refer the matter to a Larger Bench. The bench acknowledged the need for clarity on whether the activity of processing spices into powder constitutes manufacture and whether service tax is applicable under 'Business Auxiliary Services'. The matter was directed to be placed before the Hon'ble President for the constitution of a Larger Bench to address the issues raised.

This detailed analysis of the judgment provides insights into the legal arguments, precedents cited, and the decision-making process leading to the referral to a Larger Bench for resolving the contentious issues involved in the case.