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2021 (6) TMI 26 - AT - Service TaxNature of activity - Manufacture or service - Process amounting to manufacture or not - activity of crushing, pulverizing, converting and packing of spices into powder form - taxability under business auxiliary service? - coverage by decisions of co-ordinate benches of the Tribunal in M/S. JAYAKRISHNA FLOUR MILLS (P) LTD. VERSUS CCE, MADURAI 2014 (12) TMI 547 - CESTAT CHENNAI and in SARA SPICES VERSUS COMMISSIONER OF C. EX., CUS. S.T., COCHIN 2018 (2) TMI 1794 - CESTAT BANGALORE - HELD THAT - The constitutionally enshrined demarcation even among the several taxable events assigned to the Union by the Seventh Schedule for imposing of levies is mirrored, for the period preceding the introduction of negative list regime, by the taxing of contract manufacture as business auxiliary service while keeping activities that are taxed by Central Excise Act, 1944 out of its ambit. The nub of the controversy, as eloquently asserted by Learned Counsel, is the zero rating of the impugned goods owing to which the jurisdictional tax officials were afforded the luxury of contemplating the non-exigibility of the impugned activity to tax as manufacture. On perusal of the germane provisions of Central Excise Act, 1944, viz., definitions, of excisable goods and manufacture , in section 2 in conjunction with section 3, it is clear that the authority to assign rates of duty is restricted to the excisable goods enumerated in the tariff schedule while the levy, and assessment thereof, is conjoined with activity of manufacture that produces those goods. The foundation of the decision in Jayakrishna Flour Mills (P) Ltd , even if not about production of powdered spice is, yet, on taxability under section 65(105)(zzb) of Finance Act, 1994, as provider of business auxiliary services and, though in relation to processing of wheat into wheat powder to which the relied upon clarification of Central Board of Excise Customs pertained, the influence therein of the test prescribed in the several judgments supra is evident. The acceptance of subsequent orders, discarding, in identical circumstances, the proposal to levy service tax, of the original and appellate authority that followed the clarification of Central Board of Excise Customs on manufacture of wheat products, places a severe restriction on continuation of the controversy vis- -vis levy of service tax. The decision in Jayakrishna Flour Mills (P) Ltd is, unlike the decision in Sara Spices , not deprived of its authority as binding precedent. The manufacturing as held by the Tribunal in Jayakrishna Flour Rolling Mills (P) Ltd has relevance to the present dispute that is wanting in the decision in Sara Spices which resolved an entirely different dispute - Registry is directed to place this response of the Larger Bench before the Division Bench, along with the records, for disposal of the appeal.
Issues Involved:
1. Whether the activity of crushing, pulverizing, converting, and packing of spices into powder form amounts to manufacture or not. 2. If not, whether service tax is payable under the category of 'business auxiliary service' or not. Detailed Analysis: 1. Whether the activity of crushing, pulverizing, converting, and packing of spices into powder form amounts to manufacture or not: The Tribunal had to determine if the process of converting whole spices into powder constitutes 'manufacture' under the Central Excise Act, 1944. The appellant, M/s Nilgiri Oil & Allied Industries, argued that their activities fell within the definition of 'manufacture' as per Section 2(f) of the Central Excise Act, 1944, which would exempt them from service tax under Section 65(105)(zzb) of the Finance Act, 1994. The Tribunal referenced several Supreme Court judgments to establish the definition of 'manufacture.' The key points derived from these judgments were: - Union of India vs. Delhi Cloth and General Mills Co Ltd (1977): Manufacture implies the creation of a new substance known to the market. - Moti Laminates Pvt Ltd vs. Collector of Central Excise Ahmedabad (1995): Goods must be marketable to attract excise duty. - South Bihar Sugar Mills Ltd vs. Union of India (1968): Manufacture involves a transformation resulting in a new and different article with a distinctive name, character, or use. - Ujagar Prints vs. Union of India (1989): The process must result in a commercially different commodity. - Bhor Industries Ltd vs. Collector of Central Excise, Bombay (1989): Goods must be capable of being sold in the market. - Union of India vs. JG Glass Industries Ltd (1998): A two-fold test for manufacture: transformation into a different commercial commodity and the original commodity ceasing to exist. Applying these principles, the Tribunal concluded that the conversion of whole spices into powder form does constitute 'manufacture' as it results in a product with distinct use and marketability. The Tribunal found that the transformation of spices into powder meets the criteria for 'manufacture' as established in the cited judgments. 2. If not, whether service tax is payable under the category of 'business auxiliary service' or not: Given the conclusion that the process amounts to 'manufacture,' the second issue of whether service tax is payable under 'business auxiliary service' became redundant. However, the Tribunal still addressed the statutory provisions to clarify the position. The Tribunal noted that Section 65(19) of the Finance Act, 1994, as amended, excludes activities amounting to 'manufacture' from the definition of 'business auxiliary service.' Since the Tribunal determined that the activities in question do constitute 'manufacture,' they are excluded from service tax under this category. The Tribunal also addressed the relevance of circulars and previous Tribunal decisions. The circular dated 16th March 2000, which clarified that turmeric powder remains turmeric powder and is not an excisable product, was found not applicable to the present case. The Tribunal emphasized that the decision in Jayakrishna Flour Mills (P) Ltd was more relevant as it pertained to the taxability under the Finance Act, 1994, and the conversion of wheat to wheat products was considered 'manufacture.' Conclusion: The Tribunal concluded that the activity of converting whole spices into powder form does constitute 'manufacture' under the Central Excise Act, 1944. Consequently, such activities are excluded from service tax under the category of 'business auxiliary service' as per Section 65(19) of the Finance Act, 1994. The Tribunal directed the Registry to place this response before the Division Bench for disposal of the appeal.
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