2017 (9) TMI 29 - AT - Service Tax

Business Auxiliary Services - whether the activity of blending and packing of tea on behalf of client would fall within the definition of Business Auxiliary Service? - Held that - reliance placed in the case of COMMISSIONER OF INCOME TAX KERALA Versus TARA AGENCIES 2007 (7) TMI 4 - SUPREME COURT OF INDIA where it was held that the respondent s activity amounts to processing only and the activity does not amount to either production or manufacture - the activity of the appellants would not amount to manufacture - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether blending and packaging of tea amounts to Business Auxiliary Services.
2. Imposition of penalties under different sections of the Finance Act 1994.

Analysis:
1. The case involved the appellants engaged in blending and packaging tea on behalf of their client, facing a demand for service tax, interest, and penalties under Business Auxiliary Services. The original authority confirmed the demand and imposed penalties under Sections 77 and 78, but not under Section 76 of the Finance Act 1994. The department appealed against the non-imposition of penalty under Section 76, while the appellant also filed an appeal. The Commissioner (Appeals) upheld the demand, interest, and penalties, and allowed the department's appeal, imposing a penalty under Section 76. The appellant appealed against these decisions.

2. The appellant argued that their activities constituted processing, not production or manufacture of tea, citing legal precedents such as the case of M/s. Tara Agencies and other judgments. The department contended that the activities amounted to manufacturing of goods. The Hon'ble Apex Court's observations in the case of Commissioner of Income Tax, Kerala Vs. Tara Agencies were considered, where the distinction between production, manufacturing, and processing of tea was discussed. The court analyzed the terms "manufacture," "production," and "process" in detail to determine the nature of the appellants' activities.

3. The court concluded that the appellants' activities of blending and packaging tea did not amount to manufacturing. Relying on legal precedents like the case of Sonic Watches Ltd and others, the court held that the demand for service tax, interest, and penalties was unsustainable. Consequently, the impugned orders were set aside, and the appeals were allowed with any consequential reliefs.

In summary, the judgment addressed the classification of blending and packaging of tea under Business Auxiliary Services, the imposition of penalties under different sections of the Finance Act 1994, and the interpretation of terms like "manufacture," "production," and "process" in the context of the appellants' activities.