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Issues: Whether further processing, drying and packing of tobacco leaves undertaken on job work basis amounts to Business Auxiliary Service or is processing of agricultural produce not liable to service tax.
Analysis: The dispute turned on whether the tobacco received for processing remained agricultural produce within the meaning of the Service Tax (Removal of Difficulty) Order, 2002 and the exemption framework under Notification No. 14/2004-ST as amended. The activity was held to be only further processing of tobacco leaves without bringing into existence any new or distinct commodity. The essential character of tobacco remained unchanged, and the activity was treated as processing in relation to agriculture. The Bench also followed its earlier decision on identical facts and noted that the Revenue's challenge to that view had already failed before the Supreme Court, making judicial discipline applicable.
Conclusion: The activity is not taxable as Business Auxiliary Service and the demand cannot be sustained.
Ratio Decidendi: Where processing of tobacco leaves does not alter their essential character or create a new commodity, and the activity remains in relation to agriculture, it falls outside Business Auxiliary Service and is not liable to service tax.
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