Chemical processing of water not treated as manufacture prima facie; partial pre-deposit ordered with recovery stayed during appeal.

Chemical treatment and processing of water was not accepted prima facie as manufacture because the processed water did not emerge as a distinct commodity from the input. On that basis, the service tax demand was treated as having sufficient force for interim consideration, but complete denial of relief was not justified. The appellant was directed to deposit 50% of the duty within six weeks; on compliance, the balance pre-deposit and the entire penalty were waived and recovery remained stayed during the appeal.

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Issues: Whether the activity of chemical treatment and processing of water amounted to manufacture for the purpose of the service tax dispute, and whether the appellant should be directed to make pre-deposit of a part of the demand with waiver of the balance and stay of recovery during the pendency of the appeal.

Analysis: At the prima facie stage, the activity of processing water was not accepted as manufacture, as the result remained processed water and did not emerge as a different commodity from the input. On that basis, the service tax demand was found to have sufficient force for the purpose of interim consideration, but complete denial of relief was not warranted. The appellant was therefore directed to deposit 50% of the duty involved within six weeks, and upon such deposit the balance pre-deposit and the entire penalty were ordered to remain waived with recovery stayed during the appeal.

Outcome: Partial interim relief granted by directing deposit of 50% of the duty and staying recovery of the balance demand and penalty during the appeal.

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