Commissioner of Central Tax Vs Premier Tobacco Packers (CESTAT Hyderabad)
The appeal before the CESTAT Hyderabad arose from a dispute regarding the levy of service tax on activities undertaken by the respondent, who was engaged in trading tobacco and carrying out threshing and re-drying of tobacco leaves on a job work basis. The department alleged that the respondent had failed to discharge service tax on job work charges received for such processing, classifying the activity under Business Auxiliary Services (BAS), and issued a show cause notice demanding tax, interest, and penalties. The adjudicating authority confirmed the demand, but the Commissioner (Appeals) set aside the order, leading to the department’s appeal before the Tribunal.
The department contended that the respondent’s activities were not related to agriculture, as the tobacco processed had already undergone curing and other primary processes before reaching the respondent. It was argued that the respondent’s processing constituted value addition using machinery and labour, forming part of the chain leading to cigarette manufacturing. The department further submitted that such processed tobacco could not be treated as primary agricultural produce and that the services rendered were taxable under BAS.
The respondent, however, relied on an earlier decision of the Tribunal in a similar matter, where it was held that processing, threshing, and drying of tobacco leaves do not result in the emergence of a new product and remain activities in relation to agricultural produce. That decision had been upheld by the Supreme Court, thereby attaining finality.
