Manufacture by mineral crushing can exclude Business Auxiliary Service and defeat extended limitation where the issue is debatable.

Crushing lumps into powder may amount to manufacture where Chapter Note 2 of Chapter 25 deems the process as manufacture and the product emerges with a different name, character and use. On that basis, the activity falls outside Business Auxiliary Service because the statutory definition excludes activities amounting to manufacture of excisable goods. The analysis also notes that, where the issue was subject to divergent views and genuinely debatable, the extended period of limitation cannot be invoked. The resulting service tax demand was therefore treated as unsustainable and barred by limitation, with consequential relief following.

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Issues: Whether crushing of lumps into powder amounts to manufacture, and if so, whether the activity is excluded from Business Auxiliary Service and whether the demand is sustainable on limitation.

Analysis: The activity of crushing lumps was examined in the light of Section 2(f) of the Central Excise Act, 1944 and Chapter Note 2 of Chapter 25 of the Central Excise Tariff Act, 1985. A process specified in the chapter notes as amounting to manufacture falls within the statutory definition. The conversion of lumps into powder or smaller sized material results in a product with a different name, character and use, and the settled line of decisions on similar mineral crushing activity supports treating the process as manufacture. Since the definition of Business Auxiliary Service under Section 65(19) of the Finance Act, 1994 excludes any activity that amounts to manufacture of excisable goods, the activity does not fall within the taxable service. On limitation also, the issue had been the subject of divergent views and the demand could not be sustained for the extended period.

Conclusion: The crushing activity amounts to manufacture, the service tax demand under Business Auxiliary Service is not sustainable, and the demand is also barred by limitation.

Final Conclusion: The impugned orders were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Where a process is treated by the tariff chapter notes as manufacture and it yields a commercially distinct product, the resulting activity falls outside Business Auxiliary Service by statutory exclusion, and extended limitation cannot be invoked where the issue is genuinely debatable.

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