2021 (9) TMI 1544 - AT - Service Tax

Nature of activity - sale or service - Process amounting to manufacture - activity of crushing, pulverizing, converting and packing of spices into powder - levy of service tax under the category of business auxiliary service or not - HELD THAT - This issue has been answered by the Larger Bench of the Tribunal in NILGIRI OIL ALLIED INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS, HYDERABAD IV 2021 (6) TMI 26 - CESTAT HYDERABAD where it was held that 'Each of the whole spices or seeds is subject to processing for production of powder. The transformed product has its own market similar to, and yet independent of, the harvested product that is subjected to processing. It is the particular use to which powdered spice is put to that prompted the establishment of an entire industry. Furthermore, without such processing there would be an unsatiated demand for powdered spice which would have to be undertaken, with additional labour, in domestic kitchens. Every aspect of manufacture , as settled by judicial determination, is, thus, complied with.' The demand cannot sustain - appeal allowed.

Summary

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

Analysis:
1. The Larger Bench of the Tribunal was tasked with determining whether the process of converting whole spices into powder constitutes manufacturing. The Bench emphasized that each spice undergoes processing to produce powder, creating a distinct market for the transformed product. The judgment highlighted that the processing of spices aligns with the definition of 'manufacture' established through judicial precedents. Reference was made to the decision in Jayakrishna Flour Mills (P) Ltd., affirming the relevance of manufacturing in the context of spice conversion to powder. The judgment concluded that the test for 'manufacture,' as articulated in prior cases like Delhi Cloth and General Mills Ltd., is unequivocally met in the conversion of spices to spice powders.

2. The department had raised demands in both appeals, arguing that the conversion of spices into powder did not amount to manufacturing. The Adjudicating Authority upheld the demand. However, the Larger Bench's ruling on May 25, 2021 settled the issue by determining that the conversion process indeed qualifies as manufacturing. Consequently, the orders passed by the Commissioner (Appeals) in August 2013 and October 2014, which confirmed the demand, were deemed unsustainable in light of the Larger Bench's decision. As a result, the appeals were allowed, overturning the previous orders.

Overall, the judgment clarified the manufacturing aspect of converting spices into powder and its implications on the liability for service tax under the 'business auxiliary service' category. The decision provided a comprehensive analysis of the manufacturing process involved in spice conversion, aligning with established legal principles and precedents in the realm of taxation and industrial operations.