26 五月 2021

Crushing, pulverizing, converting and packing of spices into powder form is ‘manufacture’

The Larger Bench of the Customs, Excise and Service Tax Appellate Tribunal (‘CESTAT’) has on 25 May 2021 held that the activity of crushing, pulverizing, converting and packing of spices into powder form amounts to ‘manufacture’. The question as to whether the activity would be liable to service tax under Business Auxiliary Service (‘BAS’), was thus answered in negative.

The Tribunal in this regard observed that the transformed product has its own market similar to, and yet independent of, the harvested product that is subjected to processing.

The Larger Bench noted that it is the particular use to which powdered spice is put to, that has prompted the establishment of an entire industry. It observed that without such processing there would be an unsatiated demand for powdered spice which would have to be undertaken, with additional labour, in domestic kitchens.

The 3-Member Bench also concluded that the test for ‘manufacture’, as laid down by the Supreme Court in Delhi Cloth and General Mills Ltd. case and other decisions that enlarged upon it, complied with in the conversion of ‘wheat’ to ‘wheat products’, is, unqualifiedly, existent in the conversion of ‘spice’ to ‘spice powders’ in the present dispute.

Relying upon various decisions on ‘manufacture’, the Larger Bench observed that every aspect of ‘manufacture’ was thus complied with in the dispute and that the applicability of the CESTAT decision in Jayakrishna Flour Mills (P) Ltd. to the impugned products (spices) was beyond question. CESTAT decision in the case of Sara Spices was distinguished.

The CESTAT also distinguished CBEC Circular No. 521/17/2000-CX, dated 16 March 2000. According to the Tribunal, the issuing of that clarification necessitated by the imperative of forestalling future controversy over subjecting a product that was already in existence to duty afresh as ‘cosmetic’, merely for having been packaged for marketing, cannot be adopted for the process disputed in the present appeals.

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