2018 (6) TMI 804 - AT - Service Tax

Business Auxiliary Services - manufacture - whether the activities undertaken by the appellant on behalf of the other party amounts to manufacture or not? - whether they get covered under the exclusion clause of Section 65 (29) being an activity to manufacture and thus entitled for exemption from payment of service tax under Business Auxiliary Service? Held that - Clause (iv) of Section 65 (19) of the Finance Act, 1994 provides that service in relation to production or processing of the goods for or on behalf of a client is covered under the business auxiliary service. However, the definition of business auxiliary service specifically excludes any activity which amounts to manufacture within the meaning of Section 2 (f) of the Central Excise Act, 1944 from levy of service tax - The Chapter IV of Central Excise Tariff Act, where milk and milk products are classified has a specific mention under Chapter Note 6 of Chapter 4 that in relation to products of this chapter labeling or relabeling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer shall amount to manufacture . Since the activity of manufacture, is excluded from the scope of classification and levy of service tax under business auxiliary service, the activity undertaken by the appellant are not leviable to service tax under business auxiliary service. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the activities undertaken by the appellant amount to manufacture or not, and whether they are exempt from service tax under Business Auxiliary Service.

Analysis:
The case involved a tripartite agreement where the appellant undertook various activities on behalf of two cooperatives, including weighment, storage, chilling, pasteurization, packing, delivery, cleaning, and testing of milk. The appellant argued that their activities amount to manufacture under Section 2(f) of the Central Excise Act, 1944, and thus are exempt from service tax under Business Auxiliary Service. The Department contended that many activities provided by the appellant are purely service and not manufacturing, making them liable for service tax.

The Tribunal analyzed the activities undertaken by the appellant, focusing on the process of receiving, storing, pasteurizing, and packing milk for distribution. They referred to Section 65(19) of the Finance Act, 1994, which includes services related to production or processing of goods under Business Auxiliary Service but excludes activities amounting to manufacture. The Tribunal noted Chapter Note 6 of Chapter 4 of the Central Excise Tariff Act, which states that any treatment to render a product marketable amounts to manufacture.

Based on the above, the Tribunal concluded that the appellant's activities, including pasteurization and packing, fell within the definition of manufacture as per Chapter 4 of the Central Excise Tariff Act. Therefore, they were excluded from the scope of service tax under Business Auxiliary Service. The Tribunal found the law unambiguous on this matter and allowed the appeal, setting aside the order-in-original and providing consequential relief to the appellant.

In summary, the Tribunal decided that the activities undertaken by the appellant constituted manufacturing as per the relevant laws, making them exempt from service tax under Business Auxiliary Service.