Spice Conversion to Powder Deemed 'Manufacture'; Exempt from Service Tax as Business Auxiliary Service.

The Tribunal determined that the conversion of whole spices into powder form constitutes 'manufacture' under the Central Excise Act, 1944, as it results in a distinct product with marketability. Consequently, these activities are exempt from service tax under 'business auxiliary service' per Section 65(19) of the Finance Act, 1994. The Registry was directed to present this outcome to the Division Bench for appeal resolution.

---

---

Issues Involved:
1. Whether the activity of crushing, pulverizing, converting, and packing of spices into powder form amounts to manufacture or not.
2. If not, whether service tax is payable under the category of 'business auxiliary service' or not.

Detailed Analysis:

1. Whether the activity of crushing, pulverizing, converting, and packing of spices into powder form amounts to manufacture or not:

The Tribunal had to determine if the process of converting whole spices into powder constitutes 'manufacture' under the Central Excise Act, 1944. The appellant, M/s Nilgiri Oil & Allied Industries, argued that their activities fell within the definition of 'manufacture' as per Section 2(f) of the Central Excise Act, 1944, which would exempt them from service tax under Section 65(105)(zzb) of the Finance Act, 1994.

The Tribunal referenced several Supreme Court judgments to establish the definition of 'manufacture.' The key points derived from these judgments were:
- Union of India vs. Delhi Cloth and General Mills Co Ltd (1977): Manufacture implies the creation of a new substance known to the market.
- Moti Laminates Pvt Ltd vs. Collector of Central Excise Ahmedabad (1995): Goods must be marketable to attract excise duty.
- South Bihar Sugar Mills Ltd vs. Union of India (1968): Manufacture involves a transformation resulting in a new and different article with a distinctive name, character, or use.
- Ujagar Prints vs. Union of India (1989): The process must result in a commercially different commodity.
- Bhor Industries Ltd vs. Collector of Central Excise, Bombay (1989): Goods must be capable of being sold in the market.
- Union of India vs. JG Glass Industries Ltd (1998): A two-fold test for manufacture: transformation into a different commercial commodity and the original commodity ceasing to exist.

Applying these principles, the Tribunal concluded that the conversion of whole spices into powder form does constitute 'manufacture' as it results in a product with distinct use and marketability. The Tribunal found that the transformation of spices into powder meets the criteria for 'manufacture' as established in the cited judgments.

2. If not, whether service tax is payable under the category of 'business auxiliary service' or not:

Given the conclusion that the process amounts to 'manufacture,' the second issue of whether service tax is payable under 'business auxiliary service' became redundant. However, the Tribunal still addressed the statutory provisions to clarify the position.

The Tribunal noted that Section 65(19) of the Finance Act, 1994, as amended, excludes activities amounting to 'manufacture' from the definition of 'business auxiliary service.' Since the Tribunal determined that the activities in question do constitute 'manufacture,' they are excluded from service tax under this category.

The Tribunal also addressed the relevance of circulars and previous Tribunal decisions. The circular dated 16th March 2000, which clarified that turmeric powder remains turmeric powder and is not an excisable product, was found not applicable to the present case. The Tribunal emphasized that the decision in Jayakrishna Flour Mills (P) Ltd was more relevant as it pertained to the taxability under the Finance Act, 1994, and the conversion of wheat to wheat products was considered 'manufacture.'

Conclusion:

The Tribunal concluded that the activity of converting whole spices into powder form does constitute 'manufacture' under the Central Excise Act, 1944. Consequently, such activities are excluded from service tax under the category of 'business auxiliary service' as per Section 65(19) of the Finance Act, 1994. The Tribunal directed the Registry to place this response before the Division Bench for disposal of the appeal.

---