Agricultural processing exemption and technical know-how transfer outside consulting engineer service; service tax demands were set aside.

Processing vegetables by cutting, packing and freezing on behalf of a client was treated as processing in relation to agriculture because the essential character of the produce was retained and a binding circular supported the exemption. The activity was therefore held outside Business Auxiliary Service and the tax demand was unsustainable. Transfer of technical know-how, design and drawings for setting up a facility was treated as a supply of know-how, not consultancy or technical assistance by an engineering firm. It was therefore held outside Consulting Engineer's Service under reverse charge, and that demand was also unsustainable. The impugned orders were set aside on merits.

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Issues: (i) Whether the activity of cutting, packing and freezing vegetables for a client fell within Business Auxiliary Service and was exempt as processing in relation to agriculture; (ii) Whether transfer of technical know-how and design and drawing from a foreign entity was taxable as Consulting Engineer's Service under reverse charge.

Issue (i): Whether the activity of cutting, packing and freezing vegetables for a client fell within Business Auxiliary Service and was exempt as processing in relation to agriculture.

Analysis: The activity involved processing of vegetables on behalf of the client, and the Board circular clarified that client processing which preserves the essential character of agricultural produce is covered by the expression relating to agriculture in the exemption notification. The Tribunal followed its earlier view on identical facts and held that revenue authorities cannot contend contrary to the binding circular. The activity therefore did not attract service tax under Business Auxiliary Service.

Conclusion: The demand under Business Auxiliary Service was unsustainable and was set aside.

Issue (ii): Whether transfer of technical know-how and design and drawing from a foreign entity was taxable as Consulting Engineer's Service under reverse charge.

Analysis: The agreement was for transfer of technical know-how and design and drawing for setting up the facility, and not for consultancy or technical assistance rendered by an engineering firm. The Tribunal followed its earlier decisions holding that supply or transfer of technical know-how does not fall within Consulting Engineer's Service. On that footing, the reverse charge demand could not be sustained.

Conclusion: The demand under Consulting Engineer's Service was unsustainable and was set aside.

Final Conclusion: The impugned orders were set aside in full and the appeals succeeded on merits.

Ratio Decidendi: Processing of agricultural produce on behalf of a client, where the essential character of the produce is retained and a binding circular grants exemption, is outside Business Auxiliary Service; transfer of technical know-how is not Consulting Engineer's Service unless it is consultancy or technical assistance by an engineering firm.

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