2019 (6) TMI 326 - AT - Service Tax

Nature of activity - Manufacture or Business Auxiliary Services? - processes of chilling, pasteurization, homogenization and standardization etc. to convert raw milk into toned milk - HELD THAT - On going through the definition of business auxiliary services, it is found that the same excludes a service which amount to manufacture of excisable goods. As such it can be safely concluded that if the processes or production for and on behalf of another person amounts to manufacture, the same would not get covered by the definition of business auxiliary services. Admittedly the processes undertaken by the appellant are for the purpose of rendering the raw milk as marketable product for the ultimate consumption of general public and as such, would get covered by the said Chapter note conferring a deeming status. The milk in question is known differently in the market and amongst the people, who use it. As such, the final product i.e. toned milk being separate and distinct from the raw milk has to be held as a manufactured item. If that be so, the definition of business auxiliary services would not be satisfied inasmuch as the same specifically excludes the processes which amount to manufacture - the appellant is not undertaking the chilling processes only, but there are further processes of pasteurization, homogenization and standardization etc., thus undertaking the manufacturing process beyond doubt. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the conversion of raw milk into toned milk amounts to manufacture or falls under the category of business auxiliary services for Service Tax liability.

Analysis:
The case involved the appellant entering into a contract with Mother Dairy to convert raw milk into toned milk through various processes like chilling, pasteurization, homogenization, and standardization. The Revenue alleged that these activities amounted to providing business auxiliary services, initiating proceedings and issuing show cause notices for Service Tax liability. The Commissioner confirmed a substantial Service Tax amount, interest, and penalties, leading to the appeal before the Tribunal.

The appellant contended that the processes undertaken constituted 'manufacture' rather than business auxiliary services, as they were primarily engaged in job-work for Mother Dairy to convert raw milk into toned milk. They argued that the final product was subject to Central Excise duty under a specific tariff heading, even though it attracted a nil rate of duty. The appellant relied on chapter note 6 of chapter 4, which considers activities like rendering products marketable as 'manufacture.' They also highlighted that similar agreements with other job-workers faced no such proceedings, and challenged the findings of the Commissioner regarding the receipt and treatment of toned milk samples.

The Revenue, represented by the Assistant Commissioner, supported the adjudicating authority's reasoning, emphasizing the service nature of the appellant's activities for Mother Dairy.

Upon careful consideration, the Tribunal found no dispute on the factual aspects of the case. The central issue was whether the conversion of raw milk into toned milk constituted 'manufacture' or business auxiliary services for Service Tax purposes. Referring to chapter note 6 of chapter 4, which deems certain activities as 'manufacture' for marketable products, the Tribunal concluded that the appellant's processes aimed at making raw milk marketable fell under this deeming provision. Additionally, the fat content specifications and distinct market identities of the final product supported its classification as a manufactured item separate from raw milk.

The Tribunal referenced precedents like Acclaim Foods Private Ltd. and Vinayak Industries cases, where activities like chilling of milk were considered manufacturing processes. In light of the appellant's comprehensive processes beyond chilling, including pasteurization and homogenization, the Tribunal upheld that the conversion of raw milk into toned milk constituted 'manufacture' and not business auxiliary services. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief, without addressing the limitation plea due to the merit-based decision.