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ST – Converting raw milk into toned milk – since activity is deemed manufacture in view of Chapter note 6 to Ch. 4, demand of service tax under BAS cannot survive: CESTAT

2019-TIOL-2121-CESTAT-ALL

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, ALLAHABAD
COURT NO. I

Service Tax Appeal No.70060 of 2017

Arising out of Order-in-Original No.06-07/Commissioner/ST/Noida/2016-17, Dated: 31.10.2016
Passed by Commr. of Service Tax, Noida

Date of Hearing: 16.05.2019
Date of Decision: 16.05.2019

M/s INDIAN POTASH LTD
2, 4A, 5A, UPSIDC INDUSTRIAL AREA, SIKANDRABAD
DISTRICT-BULANDSHAHAR, UTTAR PRADESH

Vs

COMMISSIONER OF SERVICE TAX
NOIDA, C/56/42, SECTOR-62
NOIDA, UTTAR PRADESH

Appellant Rep by: Shri Harish Bindumadhavan, Adv. & Shri Harneet Aggarwal CA
Respondent Rep by: Shri Mohd. Altaf, AC AR

CORAM: Archana Wadhwa, Member (J)
Anil G Shakkarwar, Member (T)

ST – The assessee entered into a contract for processing of raw milk received from M/s Mother Dairy – These processes included chilling, pasteurization, homogenization and standardization to convert raw milk to toned milk – This fully converted milk is transported by the assessee to Mother Dairy – Also, a portion of the toned milk dispatched by the assessee to Mother Dairy is received back by the assessee for further testing – The Revenue opined that the activities undertaken by the assessee for M/s Mother Dairy are classifiable under BAS – Two SCNs were issued for the relevant periods – On adjudication, duty demand was confirmed with interest & equivalent penalty u/s 78 – Penalty was also imposed u/s 76 & 77 of the Finance Act – Hence the present appeal.

Held: The definition of BAS excludes any service which amounts to manufacture of excisable goods – Hence it can safely be concluded that if the processes or production for and on behalf of another person is tantamount to manufacture, the same would not be covered under BAS – Also considering chapter note 6 of chapter 4, the same is in the nature of a deeming clause holding the activities as amounting to manufacture, in case the same are clearly not covered by the definition of manufacture appearing in section 2(f) of the Central Excise Act – Admittedly, the processes undertaken by the assessee are for rendering raw milk as marketable product for ultimate consumption of the general public & as such gets covered by the chapter note conferring a deeming status – Hence the O-i-O confirming duty demand merits being quashed: CESTAT

Assessee’s appeal allowed

Case laws cited:

Acclaim Foods Private Ltd. v. Commissioner of C.Ex., & S.T., Jaipur-I [2018 (10) G.S.T.L. 66 (Tri.-Del.)]… Para 6

Vinayak Industries v. Commissioner of C.Ex. & S.T., Jaipur-I – 2016-TIOL-2273-CESTAT-DEL… Para 6

Sharma Ice Factory v. Commissioner of Central Excise, Jaipur-I – 2014-TIOL-3244-CESTAT-DEL… Para 6

FINAL ORDER NO. 71072/2019

Per: Archana Wadhwa:

After hearing both sides duly represented by Shri Harish Bindumadhavan, learned Advocate for the Appellant and Shri Mohd. Altaf, learned Asstt.Commr. (A.R.) for the Revenue we find that the appellant entered into a contract M/s with Mother Dairy for undertaking various processes on the raw milk received by them from Mother Diary. The said processes were chilling, pasteurization, homogenization and standardization etc. to convert raw milk into toned milk. The fully converted milk into toned milk is further transported by appellant back to Mother Dairy. It may be mentioned here that a part of the tone milk dispatched by the appellant to Mother Dairy is received back by them for the purposes of further testing, storage etc. as sample.

2. Revenue by entertained a view that the said activities undertaken by appellant for M/s.Mother Dairy amounts to providing services falling under the category of ‘Business Auxiliary Services’. Accordingly proceedings were initiated against the appellant by way of issuance of two show cause notices dated 29.09.2014, for the period November 2010 to June 2014 and show cause notice dated 12.10.2015 for the period July 2014 to March 2015. The said two show cause notices culminated into the present impugned order passed by the Commissioner of Central Excise, Noida vide which he confirmed the Service Tax of Rs.8,03,72,092/-(Rupees Eight Crore Three Lakh Seventy Two Thousand and Ninety Two only), along with confirmation of interest and imposition of penalties of identical amount in the first show cause notice in terms of section 78. Further, penalties were imposed under section 76 and 77 also under both the show cause notices.

The said order is impugned before Tribunal.

3. The appellant’s contention is that the various processes undertaken by them amount to ‘manufacture’ in which case it cannot be said that they were providing any services falling under the category of business auxiliary services. They were primarily doing the job-work for M/s.Mother Dairy for conversion of raw milk into toned milk. Such conversion was covered by the definition of manufacture inasmuch as the final product i.e. tone milk is liable to duty of Central Excise as falling under tariff heading 0401 20 00. Inasmuch as the same attracts nill rate of duty of excise, no duty was being paid by them. He also places reliance to chapter note 6 of the chapter 4 which is to the effect that labelling or re-labelling of containers or re-packing of bulk pack to retail packs or the adoption of any other treatment to render the product marketable to the consumer shall amount to ‘manufacture’. As such it is his submission that inasmuch as the processes undertaken by them are for the purpose of rendering the raw milk as marketable product, the deeming definition of manufacture provided in terms of said chapter note 6 would be fully applicable in their case. He submits that the findings of the Commissioner that they have worked on the toned milk inasmuch as the same was received back by them from M/s.Mother Dairy are factually incorrect inasmuch as such receipt back of the toned milk was with a different purposes i.e. as controlled sample as per the agreement itself. The said sample is merely stored by them for quality testing and subsequently destroyed by releasing the same in the water. He also submits that M/s.Mother Dairy has entered into identical agreements with other job-workers also and no proceedings stand initiated against any of the job-worker. He also draws our attention to the various decisions of the Tribunal wherein the identical activities undertaken by the job-workers were held as not falling under the category of business auxiliary services. The demand is also assailed on the point of limitation.

4. Learned A.R. appearing on behalf of the Revenue reiterates the reasoning of the adjudicating authority.

5. After carefully considering the submissions and going through the impugned orders we find that there is no dispute about the factual position. As per the agreement entered into by the appellant with M/s. Mother Dairy, they received raw milk and undertook various processes like chilling, pasteurization, homogenization and standardization etc.. Finally converted milk is sent back to M/s.Mother Dairy.

The only issue to be decided in the present appeal is as to whether such conversion of raw milk into toned milk amounts to manufacture so as to be leviable to the duty of excise or the same is a service falling under the category of business auxiliary service so as to attract Service Tax liability. On going through the definition of business auxiliary services we find 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.

As regards the plea of manufacture we note that chapter note 6 of chapter 4 is to the following effect.:-

“6. In relation to products on this chapter labeling or re-labeling of containers or re-packing from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to manufacture.”

The said chapter note is in the nature of a deeming clause holding the activities as amounting to manufacture, in case the same are clearly not covered by the definition of manufacture appearing in section 2(f) of the Central Excise Act. 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.

Apart from that we also find that tariff heading 0401 20 00 describes the entry as milk – of a fat content by weight, exceeding 1%, but not exceeding 6%. The product which ultimately is manufactured by the appellant contains fat contents of 3.5% in terms of the agreements between them and M/s.Mother Dairy. The said percentage of fat is prescribed by the Food Safety and Standards Authority of India. As such in view of the chapter note read with the tariff entry, it has to be held that the final product which emerges in the appellant’s factory is a milk of fat contents of 3.5% and is a manufactured item. The same, further, has to be held as being entirely different from the raw material i.e. the raw milk, on account of having a different name, use and characteristics in the common parlance. Learned Advocate has also shown us the packaging materials containing the milk of various specifications, which are described as raw milk, toned milk and double toned milk having different fat contents. As such we note that the milk in question is known differently in the market and amongst the people, who use it. As such we hold that 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. As such we find no justifiable reasons to uphold the impugned order.

6. Before we part, we may refer to some of the judgements referred to by the learned Advocate. In the case of Acclaim Foods Private Ltd. v. Commissioner of C.Ex., & S.T., Jaipur-I [2018 (10) G.S.T.L. 66 (Tri.-Del.)], chilling of milk to required temperature was held as an activity not covered under business auxiliary services so as to attract Service Tax. To the same effect is the Tribunal’s decision in the case of Vinayak Industries v. Commissioner of C.Ex. & S.T., Jaipur-I [2016 (45) S.T.R. 191 (Tri.-Del.)] = 2016-TIOL-2273-CESTAT-DEL and Sharma Ice Factory v. Commissioner of Central Excise, Jaipur-I [2015 (37) S.T.R. 660 (Tri.-Del.)] 2014-TIOL-3244-CESTAT-DEL. It stands held in the said decisions that in terms of chapter note 6 of chapter 4 chilling of milk is a treatment which renders milk marketable and as such chilling of milk amounts to manufacture. In the present case 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.

In view of the forgoing discussion, we find no merits in the Revenue’s stand. Accordingly, the impugned order is set aside and appeal is allowed with consequential relief. As the appeal has been allowed on merits, the plea of demand being barred by limitation is not being adverted to.

(Dictated and pronounced in the open Court.)

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