2018 (4) TMI 295 - AT - Service Tax

100% EOU - Business Auxiliary Services - Manufacture - process of converting black tea into decaffeinated tea - whether the decaffeinated tea is distinctly different from the raw-materials i.e. black tea? Held that - decaffeinated tea contains far lesser amount of caffeine than black tea and the same is packaged, marketed and perceived differently in the market. Consequently, the processes of extracting decaffeinated tea as well as caffeine from black tea amounts to process of manufacture - In the present case, since the entire output of the appellant is getting exported there may not be any requirement to discharge central excise duty. Business Auxiliary Services - Held that - since the process amounts to manufacture, the same will go out of the purview of the definition of Business Auxiliary Service under Finance Act 1994 - there can be no demand for service tax on the job charges. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether the activity of extracting decaffeinated tea from black tea amounts to manufacture for the purpose of service tax liability.
- Whether job charges received by the appellant for carrying out job-work can be subjected to service tax under Business Auxiliary Service.

Analysis:
1. The six appeals were filed against the Order-in-Original, challenging the demand of service tax imposed by the Department for the period April 2006 to March 2009. The appellant, a 100% EOU, received raw materials in the form of black tea for processing into decaffeinated tea on a job-work basis. The Department contended that the extraction of decaffeinated tea does not constitute manufacture, and therefore, service tax was demanded under Business Auxiliary Service.

2. The appellant argued that the processes carried out in their factory resulted in two distinct products - decaffeinated tea and caffeine, which are different from the raw materials and identified separately in the market. They emphasized that decaffeinated tea is perceived differently in the market compared to black tea. Additionally, they contended that the job charges received should not be subject to service tax under Business Auxiliary Service.

3. The Department maintained its stance as per the impugned order, asserting that the processes did not create any new commodity as both the raw materials and finished products were tea-based. The crucial issue was whether the processes led to the creation of a new product, i.e., whether decaffeinated tea was distinctly different from black tea.

4. The Tribunal noted that decaffeinated tea contained significantly less caffeine than black tea and was marketed differently. Consequently, it was determined that the processes of extracting decaffeinated tea and caffeine amounted to manufacturing activities. As a result, the activities fell outside the scope of Business Auxiliary Service under the Finance Act 1994, eliminating the liability for service tax on the job charges received by the appellant.

5. Ultimately, the Tribunal set aside the impugned order and allowed all the appeals filed by the appellant, concluding that the processes undertaken by the appellant constituted manufacturing, exempting them from service tax liability on job charges. The decision was made on 13/12/2017 in open court.