Chilling of milk as manufacture bars service tax under Business Auxiliary Service when the process makes the product marketable.

Chilling of milk was treated as a process that renders the product marketable and therefore amounts to manufacture under Note 6 of Chapter 4 of the Central Excise Tariff Act, 1985. Because the activity fell within manufacture, it could not simultaneously be taxed as Business Auxiliary Service under service tax law. The service tax demand and penalties were therefore unsustainable and were set aside, with relief granted to the assessee.

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Issues: Whether chilling of milk amounts to manufacture under Note 6 of Chapter 4 of the Central Excise Tariff Act, 1985, and consequently whether service tax is leviable on the activity under Business Auxiliary Service.

Analysis: The activity of chilling milk was held to be a treatment that renders the milk marketable. Since the process enables the product to be sold to consumers located at distant places, it falls within the statutory concept of manufacture under Note 6 of Chapter 4 of the Central Excise Tariff Act, 1985. Once the activity is treated as manufacture, it cannot simultaneously be taxed as a service under the category of Business Auxiliary Service.

Conclusion: The service tax demand and penalties were unsustainable and were set aside, resulting in allowance of the appeal in favour of the assessee.

Ratio Decidendi: A process that renders milk marketable and amounts to manufacture under Note 6 of Chapter 4 of the Central Excise Tariff Act, 1985 is not chargeable to service tax as Business Auxiliary Service.

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