2025 (3) TMI 848 - AT - Service Tax

Process amounting to manufacture - activity of chilling of milk would fall under services as defined under Section 65B(44) or would fall under the negative list as per Section 66D(d)(iii) as claimed by the appellant? - HELD THAT - Clause (d) of section 66D provides for services relating to agriculture or agricultural produce . The appellant is therefore required to satisfy that the activity of chilling of milk falls within the category of agriculture or agriculture produce which has not been substantiated with reference to the provisions of the Finance Act. In terms of the definition of agriculture and agricultural produce chilling of milk is not covered. The conjoint reading of the aforesaid provisions clearly shows that the activities enshrined in the negative list are only related to agricultural activities and cannot embrace within it the activity of chilling milk. The term animal husbandry as per the meaning ascribed to it in the Cambridge Dictionary is farming of animal to produce foods such as meat eggs and milk. The term animal husbandry being of wider import would include chilling of milk and therefore the Gujarat High Court has rightly held the activity of chilling of milk to be exempted. However there is no such provision in the Finance Act either in the negative list under section 66D(d)(iii) or under the definition of agriculture and agricultural produce . Conclusion - The activity of chilling of milk during the post negative period amounts to rendering services as defined in section 65B (44) and is therefore leviable to service tax. There are no error in the impugned order and hence the same is affirmed. The appeal is accordingly dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is whether the activity of chilling milk falls under the definition of 'services' as per Section 65B(44) of the Finance Act, 1994, and is thus subject to service tax, or whether it falls under the negative list as per Section 66D(d)(iii), thereby exempting it from service tax.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The relevant legal provisions are Sections 65B(44) and 66D(d)(iii) of the Finance Act, 1994. Section 65B(44) defines 'service' as any activity carried out by a person for another for consideration, excluding certain specified activities. Section 66D(d)(iii) lists services related to agriculture or agricultural produce, including processes like cooling, that do not alter the essential characteristics of agricultural produce but make it marketable for the primary market, as part of the negative list.

Court's Interpretation and Reasoning:

The Tribunal examined whether the chilling of milk could be classified under the negative list as an agricultural activity. It noted that the definition of 'agriculture' and 'agricultural produce' under the Finance Act does not explicitly include chilling of milk. The Tribunal found that the activities listed in the negative list pertain specifically to agricultural operations and do not encompass the chilling of milk.

Key Evidence and Findings:

The appellant argued that the chilling of milk should be exempt from service tax based on the negative list and relied on Notification No. 11/2017 and a decision by the Gujarat High Court. However, the Tribunal found that the Gujarat High Court's decision and the notification pertained to the Central Goods and Services Tax Act, 2017, and were not applicable to the Finance Act, 1994.

Application of Law to Facts:

The Tribunal applied the definitions and provisions of the Finance Act to the facts, concluding that the appellant's activity of chilling milk does not qualify as an agricultural service under the negative list. The Tribunal emphasized that the chilling of milk, while related to the dairy industry, does not fall under the specific agricultural processes listed in Section 66D(d)(iii).

Treatment of Competing Arguments:

The Tribunal considered the appellant's reliance on the Gujarat High Court's decision and the Notification No. 11/2017. It distinguished the context and applicability of these references, noting that they pertain to the Central Goods and Services Tax Act, which includes 'animal husbandry' as a broader category than the Finance Act's provisions.

Conclusions:

The Tribunal concluded that the chilling of milk is a taxable service under Section 65B(44) of the Finance Act, 1994, and does not fall within the negative list under Section 66D(d)(iii). Consequently, the appellant is liable to pay service tax on the chilling of milk for the period in question.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning:

"The activities enshrined in the negative list are only related to agricultural activities and cannot embrace within it the activity of chilling milk."

Core Principles Established:

The Tribunal established that activities related to the dairy industry, such as chilling milk, do not automatically qualify as agricultural services under the negative list unless explicitly covered by the definitions in the Finance Act. The distinction between the Finance Act and the Central Goods and Services Tax Act was emphasized, particularly regarding the scope of 'animal husbandry'.

Final Determinations on Each Issue:

The Tribunal affirmed the Commissioner (Appeals)'s decision that the activity of chilling milk is a taxable service post-01.07.2012 and dismissed the appeal, upholding the service tax demand on the appellant.

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