Processing Undertaken does not bring into Existence any New Distinct Commodity: CESTAT States Such Activity is not Liable to Service Tax under BAS [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench, held that processing alone does not bring into existence any new distinct commodity. It added that such activity is not liable to service tax under Business Auxiliary Services (BAS).

The Department noticed that the respondents, M/s Premier Tobacco Packers, engaged in the activity of threshing and re-drying of tobacco leaves on job work basis, have failed to discharge service tax liability on the job work charges received from their customers which would fall under the category of ‘Business Auxiliary Services’ (BAS) and issued SCN accordingly.

The respondents in the present case filed an appeal before the Commissioner (Appeals) who set aside the order of the adjudicating authority who confirmed the demand along with interest and imposition of penalty. The department then appealed before the CESTAT.

The authorised representative for the department submitted that the processing done in the respondent’s factory is one of the processes carried out for cigarette manufacturing.

The tribunal referenced Green Lead Tobacco Threshers Ltd and others v. CCE & ST, Guntur wherein it was held that processing and drying of tobacco leaves do not result in manufacture of any new product. CESTAT noted that the Supreme Court had affirmed this decision.

Finally, the two member bench of A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) held that the processing undertaken by the respondents does not bring into existence any new distinct commodity and the activity merely stabilizes and prepares the tobacco for storage and export. The same cannot be brought under BAS.

The appeal was dismissed.

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