Service Tax Payable on Milk Chilling Services: CESTAT Rules
Pranav B Prem
The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that the activity of chilling of milk during the post-negative period amounts to rendering ‘services’ as defined under Section 65B(44) of the Finance Act, 1994, and is, therefore, subject to service tax liability.
Background of the Case
The case pertains to M/s. Jai Durge Ice Factory, which was engaged in the chilling of milk for M/s. Sriganganagar Zila Dugdh Utpadak Sahakari Sangh Ltd. (SZDUS). In addition to milk chilling, the appellant also provided godown rental services to SZDUS, which fell under the taxable category of ‘Renting of Immovable Property Service,’ as defined under Section 65(19a) and taxable under Section 65(105)(zzzz) of the Finance Act. A show cause notice was issued to the appellant for failing to discharge service tax on the gross amount received for chilling charges (including fuel, power, and electricity charges) and godown rent for the period 2012-13. Following adjudication, the demand was confirmed, prompting the appellant to appeal before the Commissioner (Appeals). The appellate authority, relying on the decision in M/s. Sharma Ice Factory (2015 (37) STR 660 (Tri.-Del.)), ruled that the services of chilling of milk provided by the appellant up to 30.06.2012 were not liable to service tax. However, for the period post-01.07.2012, the demand of Rs. 1,18,097 along with interest was upheld, with the benefit of cum-tax duty and immunity from penalty under Section 80 of the Act. Dissatisfied with the confirmation of service tax for the post-negative period, the appellant approached CESTAT.
Appellant’s Arguments
The appellant did not contest the duty amount confirmed in respect of godown rent under ‘Renting of Immovable Property Service.’ The challenge was limited to the levy of service tax on the activity of milk chilling for the period post-01.07.2012. The appellant argued that:
Post-01.07.2012, the service tax structure changed with the introduction of a negative list under Section 66D(d)(iii), which exempted certain activities related to agriculture and agricultural produce.
Relying on Notification No. 11/2017 dated 28.06.2017 and the decision of the Gujarat Cooperative Milk Marketing Federation Ltd., it was contended that milk chilling should be considered a part of ‘agriculture’ or ‘agricultural produce’ and thus fall within the negative list.
Since the process of milk chilling does not alter the essential nature of milk, it should qualify for exemption under the negative list.
Respondent’s Arguments
The Revenue opposed the appeal, contending that:
As per the definition of ‘services’ under Section 65B(44), the activity performed by the appellant met all three essential elements: service provider, service recipient, and consideration. Thus, it was covered under the taxable service category.
For exemption under Section 66D(d)(iii), the activity should fall under ‘agriculture’ or ‘agricultural produce.’ However, the Finance Act’s definitions of these terms did not encompass milk chilling.
The Gujarat High Court ruling in Gujarat Cooperative Milk Marketing Federation Ltd. was based on the interpretation of the Central Goods and Services Tax (CGST) Act and was not applicable under the Finance Act.
CESTAT’s Observations and Ruling
The tribunal analyzed the provisions of the Finance Act and observed:
Under Section 65B(44), ‘service’ is defined as any activity carried out by a person for another for consideration, which includes declared services but excludes specific activities listed under the Act.
The negative list under Section 66D(d)(iii) covers only those agricultural processes performed on an agricultural farm, such as tending, pruning, cutting, drying, and other similar activities.
The definitions of ‘agriculture’ under Section 65B(3) and ‘agricultural produce’ under Section 65B(5) do not include milk chilling.
“The activities enshrined in the negative list are only related to agricultural activities and cannot embrace within it the activity of chilling milk.”
The reliance placed by the appellant on Notification No. 11/2017 was misplaced, as the notification was issued under the CGST Act, which is distinct from the Finance Act.
The Gujarat High Court ruling in Gujarat Cooperative Milk Marketing Federation Ltd. was based on different statutory provisions and did not apply to service tax under the Finance Act.
The term ‘animal husbandry’ in the Cambridge Dictionary is defined as “farming of animals to produce foods such as meat, eggs, and milk.” While the term may have a broad meaning, the Finance Act does not recognize milk chilling as an agricultural or animal husbandry-related activity for the purpose of service tax exemption.
Verdict
Affirming the Commissioner (Appeals)’s decision, CESTAT ruled that the activity of chilling of milk does not qualify for exemption under the negative list and is thus liable for service tax under Section 65B(44). The appeal was dismissed, with the tribunal holding: “We are, therefore, of the view that the Commissioner (Appeals) rightly held that the activity of chilling of milk during the post negative period amounts to rendering ‘services’ as defined in section 65B(44) and is therefore, leviable to service tax.”
Appearance:
For Appellant: Ms. J. Kainaat, Advocate
For Respondent:Shri Manoj Kumar, Authorized Representative
Cause Title: M/s. Jai Durge Ice Factory Versus Commissioner of CGST & Central Excise, Udaipur
Case No: Service Tax Appeal No. 52965 of 2018 [DB]
Coram: Hon’ble MS. Binu Tamta, Member (Judicial), Hon’ble MR. P.V. Subba Rao, Member (Technical)
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