Exemption for tobacco leaf processing supported waiver of pre-deposit in pending service tax appeals.

Pre-deposit of a service tax demand was waived pending appeal where the claimed levy arose from processing tobacco leaves in stages and related GTA services. The exemption notifications and later circulars indicated that processing tobacco for and on behalf of a client was treated as activity relating to agriculture and intended to fall outside service tax. That clarification also supported the view that the service was exempt, and insisting on interim deposit was considered likely to cause undue hardship. The appeals were therefore allowed to proceed without pre-deposit during their pendency.

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Issues: Whether pre-deposit of the service tax demand should be waived during pendency of the appeal in view of the claimed exemption for processing of tobacco leaves and related GTA services.

Analysis: The claimed activity involved processing of tobacco leaves in stages to prevent damage and prepare the leaves for further processing and drying. The exemption notifications and the subsequent circular indicated that processing of tobacco for and on behalf of a client was treated as relating to agriculture and was intended to fall outside service tax. The later clarification was also relied upon to show that the activity was viewed as exempt. On that basis, insisting on pre-deposit at the interim stage was considered likely to cause undue hardship.

Conclusion: Pre-deposit of the demand was waived during pendency of the appeals.

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