Manufacture by repacking and pasteurisation excludes business auxiliary service, preventing service tax on the processing activity.

Processing of milk by pasteurisation and repacking from bulk packs into branded consumer pouches was treated as manufacture because Chapter Note 6 to Chapter 4 of the Central Excise Tariff Act, 1985 deems relabelling, repacking and similar treatment to render goods marketable as manufacture under Section 2(f) of the Central Excise Act, 1944. As the activity amounted to manufacture, it fell within the statutory exclusion from business auxiliary service under Section 65(19) of the Finance Act, 1994, and service tax could not be levied on that head. The impugned order was therefore unsustainable and relief followed.

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Issues: (i) Whether the activities undertaken on behalf of the client amounted to manufacture; and (ii) whether such activities were excluded from business auxiliary service and therefore not liable to service tax.

Issue (i): Whether the activities undertaken on behalf of the client amounted to manufacture.

Analysis: The activity included pasteurization and packing of milk from bulk packs into branded consumer pouches. Chapter Note 6 of Chapter 4 of the Central Excise Tariff Act, 1985 treats labeling or relabeling, repacking from bulk to retail packs, and any other treatment to render the product marketable as manufacture. On that basis, the process undertaken was held to fall within the expanded meaning of manufacture under Section 2(f) of the Central Excise Act, 1944.

Conclusion: The activity amounted to manufacture.

Issue (ii): Whether such activities were excluded from business auxiliary service and therefore not liable to service tax.

Analysis: Section 65(19) of the Finance Act, 1994 covers services in relation to production or processing of goods for a client, but it excludes activities amounting to manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944. Since the core activity was found to be manufacture, the exclusion applied and the demand under business auxiliary service could not be sustained.

Conclusion: The activities were excluded from business auxiliary service and were not liable to service tax.

Final Conclusion: The impugned order could not be sustained, and the appellant was entitled to relief.

Ratio Decidendi: Where the processing of goods falls within manufacture under the tariff note and the central excise definition, the same activity is excluded from business auxiliary service and cannot be subjected to service tax under that head.

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