Chilling of milk as manufacture excludes the activity from service tax under Business Auxiliary Service

Chilling of milk was treated as a process that renders the product marketable and therefore falls within Chapter Note 6 to Chapter 4, which deems such treatment to be manufacture. Because an activity amounting to manufacture is not liable to service tax, the service tax demand could not be sustained under Business Auxiliary Service. The principle of noscitur a sociis was held inapplicable, as the expression "any other treatment" was read according to the clear language of the chapter note and its link to treatment that makes the goods marketable to the consumer. The activity was accordingly excluded from service tax.

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Issues: Whether chilling of milk falls within Business Auxiliary Service; whether Chapter Note 6 to Chapter 4 treats chilling of milk as manufacture and therefore excludes the activity from service tax; whether the principle of noscitur a sociis limits the expression "any other treatment" in the chapter note.

Analysis: The activity of chilling milk was examined in the context of Section 65(19) of the Finance Act, 1994 and Chapter Note 6 of Chapter 4 of the Central Excise Tariff Act, 1985. The chilling process was held to be a treatment that renders milk marketable, and therefore within the words of Chapter Note 6, which deems such treatment to be manufacture. Since an activity amounting to manufacture is not liable to service tax, the demand could not survive. The principle of noscitur a sociis was found inapplicable because the chapter note was clear and unambiguous, and the expression "any other treatment" was confined by its own language to treatment adopted to render the product marketable to the consumer.

Conclusion: Chilling of milk was held not to be taxable as Business Auxiliary Service and the demand was set aside.

Final Conclusion: The appeal succeeded because the impugned service tax demand was unsustainable in law, and the activity was treated as manufacture rather than a taxable service.

Ratio Decidendi: Where a process on goods renders the product marketable and is deemed to be manufacture under the relevant chapter note, the same activity cannot be subjected to service tax as a business auxiliary service.

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