Tea Blending, Packing Services Exempted From Service Tax As ‘Agricultural Produce’: CESTAT

The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand against a logistics service provider engaged in tea blending and packing operations, holding that such activities relate to “agricultural produce” and are therefore eligible for exemption under the applicable service tax notification. The bench of Dr. D.M. Misra (Judicial Member) and R. Bhagya Devi (Technical Member) has observed that tea is produced from cultivated plants. Processing such as blending and packaging is necessary to make it marketable. The activities do not change the fundamental nature of tea as an agricultural product. The dispute pertained to the period between November 2005 and December 2006. The tax department alleged that the appellant had provided services involving collection of tea from auction centres, transportation, storage, blending, and repacking for its clients but failed to discharge service tax on such activities. According to the department, these activities fell under “Business Auxiliary Service” as defined under Section 65(105)(zzb) of the Finance Act, 1994, specifically under the category of “production or processing of goods for, or on behalf of, the client.” Based on this classification, a show-cause notice dated July 10, 2007 was issued seeking recovery of ₹5,53,355 in service tax along with interest and penalties. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) subsequently upheld the order, prompting the appellant to approach the Tribunal. The appellant argued that its activities were limited to packing and repacking ready-to-use tea, and did not involve any manufacturing or processing that would fall within the definition of Business Auxiliary Service. It was further contended that tea is an agricultural produce, and services relating to agricultural produce were exempt from service tax under Notification No. 14/2004-ST dated September 10, 2004. The appellant also relied on judicial precedents, including decisions concerning warehousing and handling of agricultural produce, to support its claim for exemption. The Tribunal examined the contractual obligations between the appellant and the Kerala State Civil Supplies Corporation Ltd. (FSCSC). The contract required the appellant to undertake activities such as collecting tea purchased through auctions, transporting the tea to designated godowns, unloading, stacking, and grading the tea, blending tea varieties under supervision, packing tea into pouches of different weights, sealing, carton packing, and dispatching the goods. The Tribunal observed that these activities amounted to processing or packing of goods on behalf of the client, and therefore technically fell within the scope of Business Auxiliary Service, as they did not amount to manufacture. However, the Tribunal noted that the more crucial issue was whether the service related to agricultural produce, which would attract exemption. While addressing the exemption issue, the Tribunal relied heavily on judicial precedents, including a ruling of the Bombay High Court in Nutan Warehousing Company Pvt. Ltd., which clarified the scope of “agricultural produce.” The High Court had observed that tea originates from cultivation and remains an agricultural produce even after processes such as blending, roasting, and packing, as these steps do not alter its essential character. Therefore, the services performed by the appellant were considered services relating to agricultural produce, which are eligible for exemption under Notification No. 14/2004-ST. The Tribunal concluded that the exemption notification squarely applied to the services provided by the appellant. It also noted that although the appellant had raised this exemption argument before the lower authorities, it had not been properly addressed. The Tribunal set aside the order and allowed the appeal, granting consequential relief in accordance with law. Case Details Case Title: M/s. Topline Services Versus The Commissioner of Central Excise, Customs and Service Tax (Appeals) Citation: JURISHOUR-223-CES-2026(BANG) Case No.: Service Tax Appeal No. 20148 of 2014 Date: 04.03.2026 Counsel For Appellant: Advocate Rukmani Menon Counsel For Respondent: Asst. Commissioner (AR) M. A. Jithendra Click Here To Read Order Read More: Investments Made Beyond ITR Due Date: ITAT Allows S. 54 Exemption for Investment in Multiple Residential Properties

Tea Blending, Packing Services Exempted From Service Tax As ‘Agricultural Produce’: CESTAT

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