Manufacture exclusion for milk processing kept chilling, pasteurisation and pouch packing outside Business Auxiliary Service tax.

Chilling, separation, pasteurisation, standardisation and packing of milk into pouches were treated as a process amounting to manufacture because the tariff notes regard treatment that renders goods marketable, including repacking, as manufacture. On that basis, the activity fell outside Business Auxiliary Service since the definition expressly excludes activities amounting to manufacture of excisable goods. For the post-negative-list period, services consisting of any process amounting to manufacture are also excluded from service tax. The process on milk was therefore not liable to service tax under Business Auxiliary Service.

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Issues: Whether the processes of chilling, separation, pasteurisation, standardisation and packing of milk into pouches amounted to manufacture and were therefore excluded from the taxable category of Business Auxiliary Service.

Analysis: The relevant tariff note treats any treatment, including repacking from bulk packs to retail packs, that renders the product marketable to the consumer as manufacture. The activity undertaken on raw milk was held to fall within this wider concept of manufacture, and the definition of Business Auxiliary Service expressly excludes any activity that amounts to manufacture of excisable goods. For the post-negative-list period, services by way of carrying out any process amounting to manufacture are also excluded from the net of service tax under the negative list. Since the process undertaken on milk was found to be manufacture, it could not be taxed as Business Auxiliary Service.

Conclusion: The activity was not leviable to service tax as Business Auxiliary Service and the issue was decided in favour of the assessee.

Ratio Decidendi: Where a process on goods falls within the statutory concept of manufacture under the tariff notes and is expressly excluded from the definition of Business Auxiliary Service, it cannot be subjected to service tax under that head.

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