2020 (2) TMI 1450 - AT - Service Tax

Nature of Activity - service or manufacture - Business Auxiliary Services or not - case of the appellant is that the processing charges received by it is not liable to be taxed under the category Business Auxiliary Service as the process undertaken by it amounts to manufacture? - HELD THAT - This Tribunal in similar facts held that process undertaken by the appellant amounts to manufacture as defined in Section 2(f) of the Central Excise Act. This is also the intent in Chapter Note 3 to Chapter Note 16 of the Tariff. We find that this note has been in the Chapter 16 both in the earlier 2005 Tariff and also in the subsequent to 2012-2016 Tariffs. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Interpretation of whether processing charges for raw fish amount to manufacture under Central Excise Act, 1944 and are excluded from Service Tax; consideration of relevant Chapter Notes and definitions; applicability of Supreme Court ruling in a similar case.

Analysis:
1. Nature of Processing Charges: The appellant argued that the processing charges for raw fish do not fall under the category of "Business Auxiliary Services" for taxation as the process amounts to manufacture. The Commissioner acknowledged the manufacturing process but concluded that it did not result in manufactured goods under the Central Excise Act, 1944. The appellant contended that any process amounting to manufacture is excluded from Service Tax under Section 65(19) of the Finance Act, 1994.

2. Manufacturing Process: The appellant presented evidence showcasing the transformation of raw material (shrimp whole) into a different product (IQF Frozen cooked PUD shrimps) through various manufacturing processes. The documents provided, such as purchase statements and commercial invoices, demonstrated the change in the product's classification from Chapter 3 to Chapter 16 of the Central Excise Tariff Act, indicating a clear manufacturing process.

3. Chapter Note Interpretation: The appellant highlighted Chapter Note 3 to Chapter 16, which considers activities like labeling, repacking, or other treatments to render a product marketable as manufacturing. The Tribunal referred to a previous case involving marine product processing, where it was established that such activities amount to manufacture, aligning with the provisions of Chapter Note 3.

4. Legal Precedent: The Tribunal differentiated the present case from the Supreme Court ruling in Sterling Foods v. State of Karnataka, emphasizing that the definition of manufacture under the Central Excise Act includes processes incidental to product completion. The Tribunal clarified that the activities of the appellant did not fall under Business Auxiliary Services as defined in the Finance Act, ultimately allowing the appeals and setting aside the impugned orders.

By thoroughly examining the manufacturing processes, relevant statutory provisions, and legal precedents, the Tribunal concluded that the appellant's activities constituted manufacture and were not subject to Service Tax under Business Auxiliary Services. The judgment highlighted the significance of Chapter Notes, definitions, and specific case law to determine the taxability of the processing charges for raw fish, ultimately ruling in favor of the appellant.