2014 (6) TMI 493 - AT - Service Tax

Transporting Chilled Milk Not Taxable

The Tribunal held that chilling milk for long-distance transportation does not constitute 'Business Auxiliary Service' or production/processing of goods ... Business Auxiliary Service - production or processing of goods not amounting to manufacture - process of manufacture - interpretation of 'production' vis-a -vis 'manufacture' - chilling of milkBusiness Auxiliary Service - production or processing of goods not amounting to manufacture - chilling of milk - interpretation of 'production' vis-a -vis 'manufacture' - Whether mere chilling of milk to a temperature below 5 C for facilitating long distance transportation amounts to 'production or processing of goods not amounting to manufacture' and thus falls within Business Auxiliary Service. - HELD THAT: - The Tribunal found no dispute as to the activity performed by the appellant being limited to chilling of milk to a temperature below 5 C and that no further processes such as pasteurization were undertaken. The Court held that mere lowering of temperature by chilling, which does not produce any permanent or temporary change in the milk other than preservation for transport, does not constitute production or processing. Reliance was placed on the principle that 'production', when used alongside 'manufacture', contemplates a process bringing about some change in raw material even if no distinct new commercial product emerges; where no such change occurs, the activity cannot be treated as production or processing. In view of that legal principle and earlier appellate findings on the same issue, the impugned orders treating chilling as Business Auxiliary Service were held unsustainable and set aside. [Paras 5]Impugned orders confirming service tax demand, interest and penalties qua chilling of milk are set aside; appeal allowed.Final Conclusion: The Tribunal allowed the appeal, holding that mere chilling of milk for transportation does not amount to production or processing of goods not amounting to manufacture and therefore is not taxable as Business Auxiliary Service; the impugned orders, stay application and application for early hearing are disposed of. 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, 1994Rs.2. Whether the process of chilling milk amounts to production or processing of goods not amounting to manufactureRs.3. Whether the impugned order confirming service tax demands, interest, and penalties against the appellant is sustainableRs.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.