Manufacture of marine products excluded from Business Auxiliary Service; related renting tax demand also held unsustainable.

Processing of marine products by washing, grading, de-skinning, removal of inedible portions, treatment with permitted additives and preservatives, glazing, freezing and packing was treated as manufacture because it rendered the product marketable and commercially distinct under Section 2(f) of the Central Excise Act and Chapter Note 3 to Chapter 16 of the Tariff Act. On that basis, the activity was not taxable as Business Auxiliary Service under the Finance Act, 1994. The related service tax demand on renting of immovable property also did not survive in light of the principal manufacture finding and the threshold position. The service tax demands and penalties were deleted.

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Issues: (i) Whether the processing of marine products undertaken by the appellant amounted to manufacture under the Central Excise law or taxable Business Auxiliary Service under the Finance Act, 1994; (ii) whether the demand of service tax on renting of immovable property survived once the principal activity was held to be manufacture and the amount was within the threshold limit.

Issue (i): Whether the processing of marine products undertaken by the appellant amounted to manufacture under the Central Excise law or taxable Business Auxiliary Service under the Finance Act, 1994.

Analysis: The activity involved washing, grading, de-skinning, removal of inedible portions, treatment with permitted additives and preservatives, glazing, freezing and packing of marine products received from clients. The process was intended to render the product marketable and commercially distinct. Under Section 2(f) of the Central Excise Act, 1944, manufacture includes processes deemed to be manufacture by Chapter notes, and Chapter Note 3 of Chapter 16 of the Central Excise Tariff Act, 1985 specifically treats treatment to render the product marketable as manufacture. The activity therefore satisfied the statutory test of manufacture and did not fall within Business Auxiliary Service under Section 65(19) of the Finance Act, 1994.

Conclusion: The activity was manufacture and not taxable Business Auxiliary Service, in favour of the assessee.

Issue (ii): Whether the demand of service tax on renting of immovable property survived once the principal activity was held to be manufacture and the amount was within the threshold limit.

Analysis: The demand on renting of immovable property was examined in the context of the overall tax liability. Since the principal processing activity was held to be manufacture, the related service tax demand was considered alongside the threshold position. On that basis, the amount demanded under renting of immovable property did not survive as a payable levy.

Conclusion: The renting-related service tax demand was not sustainable, in favour of the assessee.

Final Conclusion: The impugned orders were unsustainable and the appeals succeeded, resulting in deletion of the service tax demands and penalties.

Ratio Decidendi: Where a process on goods is specifically treated by the relevant Chapter note as manufacture because it renders the product marketable, the same activity cannot be assessed as Business Auxiliary Service under the service tax law.

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