2014 (6) TMI 493 - AT - Service Tax

Demand of service tax - Business Auxiliary Service - chilling of milk to temperature below 50Celcius for M/s. SZDUSS Ltd - Held that - mere chilling of milk to temperature below 50Celcius for the purpose of its long distance transportation, does not amount to production or processing of goods, as there is no permanent or temporary change in milk other than lowering of the temperature by the process of chilling of milk, due to which it can be transported over long distance without getting spoiled. The Apex court in the case of Commissioner Income Tax Vs. N.C. Budharaja & Co., reported in 1993 (9) TMI 6 - SUPREME Court has held that word production , when used in juxtaposition with word manufacture , takes in bringing into existence new goods by a process, which may not amount to manufacture. Therefore Production , there must be some change in the raw-material subjected to process, though by that change no new product with distinct characteristic, commercial identity and usages has emerged. The process of chilling of milk to make it fit for long distance transportation without getting spoiled, which does not bring into existence any change whatsoever, would not amount to production or processing of the goods not amounting to the manufacture. We also find that earlier, the Commissioner (Appeals) on this very issue had taken view that chilling of milk is not Business Auxiliary Service covered by section 65(19)(v) of the Finance Act, 1994. In view of this we hold that impugned order is not sustainable - Decided in favour of assessee.

Summary

Issues:
1. Whether the activity of chilling milk for long-distance transportation constitutes 'Business Auxiliary Service' taxable under section 65(105)(zzb) read with 65(19)(v) of the Finance Act, 1994?
2. Whether the process of chilling milk amounts to production or processing of goods not amounting to manufacture?
3. Whether the impugned order confirming service tax demands, interest, and penalties against the appellant is sustainable?

Analysis:
1. The appellant, an ice factory, provided chilling services to a dairy for milk transportation, leading to service tax demands. The Department considered this a taxable 'Business Auxiliary Service.' Two Show Cause Notices were issued, confirmed by the Additional Commissioner and upheld by the Commissioner (Appeals). The appellant argued that chilling milk does not fall under 'Business Auxiliary Service' as defined in the Finance Act, 1994. They cited precedents where similar activities were not considered taxable. The Department defended the impugned order.

2. The Tribunal analyzed the activity of chilling milk below 50 degrees Celsius for transportation. It was noted that no other processing like pasteurization was involved. Referring to legal precedents, the Tribunal determined that chilling milk for long-distance transport without altering its characteristics does not amount to production or processing of goods not amounting to manufacture. The Tribunal highlighted the need for a change in the raw material to constitute production, which was absent in this case. Previous decisions by the Commissioner (Appeals) also supported this view.

3. After considering arguments from both sides and reviewing the records, the Tribunal concluded that chilling milk solely for transportation purposes does not qualify as 'Business Auxiliary Service' or production/processing of goods not amounting to manufacture. Citing legal interpretations on the term 'production,' the Tribunal found the impugned order unsustainable. Consequently, the order confirming service tax demands, interest, and penalties against the appellant was set aside, and the appeal, stay application, and application for early hearing were disposed of.