Is Chilling of milk not liable for Service Tax ?
1.The appellant is engaged in chilling of milk for M/s. Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd.
2. Ld. Advocate argued that as per Chapter Note 6 of Chapter 4 of Central Excise Tariff the process of chilling of milk amounts to manufacture and therefore the said activity is outside the purview of service tax as it would not be within the purview of service. She also cited the judgment in the case of Sharma Ice Factory v. CCE [Final Order No. 51459/2014, dated 14-3-2014] wherein it was held that chilling of milk is not covered under business auxiliary service and a similar demand was set aside. The said judgment in the case of Sharma Ice Factory (supra) was followed by this Tribunal in the case of Acclaim Foods (P.) Ltd. v. CCE & ST [Final Order No. 51354 of 2016, dated 28-4-2016].
3. Ld. DR, on the other hand, argued that Chapter Note 6 to Chapter 4 ibid is to be interpreted keeping in view the principles of noscitur sociis by virtue of which the expression ‘any other treatment’ appearing in the said chapter note has to be only such treatments which are similar to labelling or relabelling of containers or repacking from bulk packs to retails packs and seen in this context chilling would not be the treatment covered within the scope of the expression ‘any other treatment’ mentioned in the said Chapter Note 6. Consequently chilling of milk will get covered under business auxiliary service. He also added that CESTAT judgment in the case of Sharma Ice Factory (supra) does not lay down any ratio and therefore is of no precedential value.
4. We have considered the contentions of both sides. At the very outset, we would like to acknowledge that in the case ofSharma Ice Factory (supra), CESTAT has held that chilling of milk (process/treatment involved in the present case) does not fall under the category of business auxiliary service and in the wake of the said judgment this appeal would obviously succeed. However, we would like to reproduce para 5 of the CESTAT judgment in case Sharma Ice Factory (supra):—
5. We have considered the submissions from both the sides and perused the records. There is no dispute about the nature of the appellant’s activity – chilling of milk to temperature below 50Celcius for M/s. SZDUSS Ltd. No other activity like pasteurization etc. is involved. We are of the view that mere chilling of milk to temperature below 50Celcius for the purpose of its long distance transportation, does not amount to production or processing of goods, as there is no permanent or temporary change in milk other than lowering of the temperature by the process of chilling of milk, due to which it can be transported over long distance without getting spoiled. The Apex Court in the case ofCommissioner of Income Tax v. N.C. Budharaja & Co. reported in 2004-ITR-412 (S.C.) has held that word ‘production’, when used in juxtaposition with word ‘manufacture’, takes in bringing into existence new goods by a process, which may not amount to manufacture, Therefore for ‘Production’, there must be some change in the raw-material subjected to process, though by that change no new product with distinct characteristics, commercial identity and usages has emerged. The process of chilling of milk to make it fit for long distance transportation without getting spoiled, which does not bring into existence any change whatsoever, would not amount to production or processing of the goods not amounting to the manufacture. We also find that earlier, the Commissioner (Appeals) on this very issue had taken view that chilling of milk is not Business Auxiliary Service covered by Section 65(19)(v) of the Finance Act, 1994. In view of this we hold that impugned order is not sustainable. The same is set aside. The appeal as well as the stay application and the application for early hearing stands disposed off”.
6. It is evident from the above quoted para that in the case of Sharma Ice Factory (supra) the Tribunal came to a finding that chilling of milk does not amount to manufacture; that being a case it is hard to fathom as to how CESTAT concluded that chilling of milk would not amount to service classifiable under the business auxiliary service given the definition of the business auxiliary service under Section 65(19) of Finance Act, 1994. At this stage, we would like to reproduce Chapter Note 6 to Chapter 4:—
7. In relation to products of this Chapter labelling or relabelling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.”
There is no doubt that chilling of milk is a treatment which renders the milk marketable. For example chilling of milk makes it possible to market/sell it to the consumers at places which are located at considerable distances. That chilling of milk is a treatment is too obvious to warrant any explaining/discussion. Consequently by virtue of the said chapter note, chilling of milk amounts to manufacture and it is settled law that process amounting to manufacture is not liable to service tax. In the light of the above analysis, we agree with the decision/conclusion in CESTAT judgment in case of Sharma Ice Factory(supra) but, as is evident, we do so on the basis of our reasoning which is not similar to the reasoning contained therein.
8. Coming to the contention of ld. DR that noscitur sociis principle should be applied for interpreting the scope of ‘any other treatment’ and according to the said principle, only such other treatments which are similar to labelling or relabelling of containers or repacking from bulk packs to retail packs would only be covered under the scope of ‘any other treatment’ and therefor chilling of milk would not be covered thereunder. We find that the other ‘treatments’ mentioned in the said chapter note are ‘labelling or relabelling of containers’ and ‘repacking from bulk packs to retail packs.’
In our view ‘labelling or relabelling of containers’ and ‘repacking from bulk packs to retail packs’ do not form part of a ‘family’ to which ‘any other treatment’ has to belong as per the requirement of the principle of noscitur sociis. Further, the said principle is one of the principles to interpretation to be adopted when the language of the statute is ambiguous. We find that the language of chapter Note 6 is totally unambiguous and clear. Further, it does not cover just ‘any other treatment’ but only such other treatment which is adopted to render the product marketable to the consumers and so the definition is not too wide and unwieldy to be required to be limited by adopting various principles of interpretation. In these circumstances in this case we do not find any scope for applying the said principle (i.e. noscitur sociis) which Diplock J. described as ‘treacherous’ (vide Letang v. Cooper 1965-1QB 232) . We are refraining from further elaborate discussion on this issue because applicability of the said principle is so clearly ruled out in the present case that an elaborate discussion would merely be an exercise in overkill.
9. In the light of the foregoing, we agree with the conclusion in the CESTAT judgment in the case of Sharma Ice Factory(supra) and set aside the impugned order. The appeal is allowed.