Manufacture versus service tax on milk processing and packing supports prima facie waiver of pre-deposit

Pasteurising milk, converting part of it into curd and butter milk, and packing the products were treated as prima facie manufacturing activities under Chapter Note 6 to Chapter 4 of the Central Excise Tariff and Section 2(f) of the Central Excise Act, because a process deemed to be manufacture by a Chapter Note is manufacture for excise purposes. The quantity-based packing structure also did not, on a prima facie view, separate out any taxable service element so as to negate the manufacturing character of the activity. On that basis, a complete waiver of pre-deposit was considered justified and recovery of the demanded liability was stayed pending appeal.

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Issues: Whether the appellant had made out a prima facie case for complete waiver of pre-deposit by showing that the activities of pasteurising milk, converting part of it into curd and butter milk, and packing the products amounted to manufacture and were therefore outside the scope of service tax.

Analysis: The activity was viewed prima facie as comprising pasteurisation, conversion of some milk into curd and butter milk, and packing of milk and allied products into pouches. These processes were considered to fall within the statutory concept of manufacture under Chapter Note 6 to Chapter 4 of the Central Excise Tariff and Section 2(f) of the Central Excise Act, 1944, because a process specified in a Chapter Note as amounting to manufacture is treated as manufacture. The payment structure based on quantity packed also did not permit segregation of the alleged service components in a manner that displaced the manufacturing character of the activity.

Conclusion: The appellant was held to have a good prima facie case for complete waiver of pre-deposit, and recovery of the demanded liabilities was stayed during the pendency of the appeal.

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