Processing & packing of vegetables/fruits not liable for service tax

By | December 5, 2015
(Last Updated On: December 5, 2015)

Facts of the case :-

Appellant is engaged in the activity of preparation of vegetables, fruits by processing the same packing in consumer packs for their clients.

Issue

Revenue is of the view that this activity amounts to rendering of services under business auxiliary services while it is the case of the appellant that by undertaking processing of vegetables they have undertaken an activity of manufacture and hence not covered under service tax liability.

Held

As per circular no 143/12/2011 ST dated 26/5/2011

“the agricultural produce namely tobacco or raw cashew, which are subject to client processing retains their essential characteristics at the output stage and therefore the processes undertaken on or behalf of client should be considered as covered by the expression ‘in relation to agriculture’. Client processing which falls under business auxiliary service undertaken on the primary agricultural produce namely tobacco or raw cashew, does not result in any change in their essential character of tobacco or cashew.

In the light of the above principle (i) process of threshing and drying of tobacco leaves and thereafter packing the same and (ii) processing of raw cashew and recovering kernel, undertaken for, or on behalf of, the clients by processing units are covered by the expression “

In our view the activity of processing the vegetables by the appellant will be in relation to agriculture hence not liable to service tax under business auxiliary services.

CESTAT, MUMBAI BENCH

Tasty Bite Eatables Ltd.

v.

Commissioner of Central Excise, Pune III

M.V. RAVINDRAN, JUDICIAL MEMBER
AND C.J. MATHEW, TECHNICAL MEMBER

ORDER NO. A/3353/2015/STB
APPEAL NO. ST/48/2012

SEPTEMBER  30, 2015

J.H. Motwani and Ms. Nehal Parekh, Advs. for the Appellant. A.B. Kulgod, Asstt. Commer. (AR) for the Respondent.

ORDER

 

M.V. Ravindran, Judicial Member – This appeal is directed against Order-in-Appeal No. PIII/RSI/339/2011 dated 30.11.2011.

2. Heard both sides and perused the records.

3. On consideration of the submissions made by both sides and perusal of records, we find that the issue arises for consideration in this appeal is whether appellant is liable to discharge service tax liability under the category of ‘Business Auxiliary Services’ or otherwise.

4. We find that appellant is engaged in the activity of preparation of vegetables, fruits by processing the same packing in consumer packs for their clients. Revenue is of the view that this activity amounts to rendering of services under business auxiliary services while it is the case of the appellant that by undertaking processing of vegetables they have undertaken an activity of manufacture and hence not covered under service tax liability. The appellant has also relied upon the board’s circular dated 26.5.2011.

5. We find that the appellant is preparing the vegetables by sorting, cleaning, boiling and freezing the same and subsequently packing it in unit packings to be sold by their customers under the brand name. The first appellate authority has held that the activity undertaken by the appellant is not in respect of agriculture are in relation to agriculture. Learned departmental representative would also argue on the same grounds. We find that the said argument does not hold water inasmuch, the board vide circular number 143/12/2011 ST dated 26/5/2011 has clarified the taxability of an activity of processing on behalf of client in relation to agriculture. The said circular is reproduced.

Subject: – Processing for or on behalf of client, ‘in relation to agriculture’ causing sale or purchase of agricultural produce — reg.

Representations have been received that client processing of tobacco involving threshing and drying of tobacco leaves and client processing of raw cashew involving roasting/drying, shelling and peeling of raw cashew to recover kernel, are considered by the field formations as not falling within the meaning of the expression ‘in relation to agriculture’ appearing in notification 14/2004-ST (as amended) dated 10th September, 2004, resulting in avoidable disputes and litigation.

2. These representations have been examined. In the cases represented, the agricultural produce namely tobacco or raw cashew, which are subject to client processing retains their essential characteristics at the output stage and therefore the processes undertaken on or behalf of client should be considered as covered by the expression ‘in relation to agriculture’. Client processing which falls under business auxiliary service undertaken on the primary agricultural produce namely tobacco or raw cashew, does not result in any change in their essential character of tobacco or cashew. In the light of the above principle (i) process of threshing and drying of tobacco leaves and thereafter packing the same and (ii) processing of raw cashew and recovering kernel, undertaken for, or on behalf of, the clients by processing units are covered by the expression ‘… processing of goods for, or on behalf of, the client…..and provided in relation to agriculture,…’ appearing in the said notification.

3. Also where the commission agents stationed abroad provide business auxiliary service to promote the export of rice, said business auxiliary service is covered by notification 13/2003-ST (as amended) because, the word ‘rice’ is mentioned under the explanation to the term ‘agricultural produce’, in the inclusive portion along with other items like cereals, pulses, etc.

4. Trade Notice/Public Notice may be issued to the field formations accordingly.

5. Please acknowledge the receipt of this circular.”

5.1 The above said clarification would squarely apply in the facts of this case as it is undisputed that appellant is undertaking the processing of vegetables on behalf of their client. It is settled law that revenue officers cannot argue against the board’s circular. In the case in hand, the first appellate authority as well as the authorised representative of the revenue are arguing against the board’s clarification as reproduced hereinabove. We do not have any hesitation to hold that such arguments put forth by the departmental representative needs to be dismissed. In our view the activity of processing the vegetables by the appellant will be in relation to agriculture hence not liable to service tax under business auxiliary services.

5.2 In view of the foregoing, in the facts and circumstances of this case, it has to be held that the impugned order is unsustainable and liable to be set aside and we do so.

6. Impugned order is set aside and appeal is allowed with consequential relief if any.

Direct Taxes Ready ReckonerService Tax Ready ReckonerCompany Law Ready Reckonertax deduction at source
New Books Released on Tax , GST and law

One thought on “Processing & packing of vegetables/fruits not liable for service tax

  1. Pingback: No service tax on volume discounts by media owners to advertising agencies - Tax Heal

Leave a Reply

Your email address will not be published. Required fields are marked *