Manufacture through processing of brass castings excluded the activity from business auxiliary service and defeated the service tax demand.

Grinding and machining of brass castings, cocks and valves received from customers was treated as manufacture because the processed goods emerged with a new tariff identity, moving from cast articles to finished taps, cocks and valves under the Central Excise Tariff Act. Applying section 2(f) of the Central Excise Act, 1944, the activity was held to result in a distinct product and therefore fell outside business auxiliary service. As manufacture is excluded from that service category, the service tax demand, along with interest and penalty, was unsustainable.

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Issues: Whether grinding and machining of brass castings, cocks and valves received from customers amounted to manufacture, so as to fall outside business auxiliary service.

Analysis: The activity had to be tested under the definition of manufacture in section 2(f) of the Central Excise Act, 1944. The goods, after processing, were shown to move from one tariff classification to another under the Central Excise Tariff Act, 1985, namely from cast articles to finished taps, cocks and valves. On that basis, and relying on the tariff chapter note concerning alloy classification, the process was treated as resulting in a new product with a distinct tariff identity. Since business auxiliary service excludes activities amounting to manufacture, the service tax demand could not stand.

Conclusion: The activity amounted to manufacture and did not fall within business auxiliary service.

Final Conclusion: The service tax demand, interest and penalty were unsustainable and the assessee succeeded in appeal.

Ratio Decidendi: Where processing results in goods attaining a different tariff identity under the excise tariff, the activity constitutes manufacture and is excluded from business auxiliary service.

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