2010 (1) TMI 400 - HC - Service Tax

Storage and Warehousing Services- The Respondent-Assessee is engaged in the manufacture of sugar. Revenue issued a Show Cause Notice to the Respondent-Assessee raising the demand of service tax alleging that amount received by Respondent-Assessee as buffer subsidy is covered within the definition of Storage and Warehousing services. Tribunal held that assessee stored the goods owned by himself and after expiry of storage period, was free to sell sugar to buyers of own choice. No service can be provided to himself. Held that- Thus the Tribunal rightly held that assessee neither becoming storage and warehouse keeper nor government of India becoming client. Department s appeal dismissed.

Summary

Issues:
1. Whether service tax is chargeable on buffer subsidy claimed from the Government of India for storage of free sale sugar under the category of 'Storage and Warehousing'?
2. Whether the definition of 'Storage and Warehousing' excludes storage and warehousing carried out on receipt of subsidy amount compensating for the storage of goods other than agricultural produce or any service provided by a cold storage?
3. Whether the gross amount claimed as buffer subsidy should be the basis for discharging service tax under the category of 'Storage and Warehousing'?

Analysis:
The judgment by the High Court of Punjab & Haryana involved the interpretation of Sections 65(105)(zaa) and 65(102) of the Finance Act, 1994 in the context of a dispute regarding the levy of service tax on a buffer subsidy claimed by an Assessee for storing free sale sugar. The Revenue challenged the Tribunal's order that set aside the demand for service tax, arguing that the subsidy received falls under 'Storage and Warehousing' services. The Court examined whether the Assessee's storage of sugar, mandated by the Government of India, constituted a service under the mentioned provisions.

The Court noted that the Respondent-Assessee stored goods owned by itself, following government directions under the Sugar Development Fund Act, 1982. The subsidy received was compensation for costs incurred, not payment for services rendered. The Court emphasized that the Assessee's actions did not amount to providing services, as they stored goods for their benefit and were free to sell them afterward. The storage of a specific quantity of sugar for compliance reasons did not transform the Assessee into a 'Storage and Warehouse keeper' nor the Government of India into their client. Consequently, the storage did not qualify as providing 'Storage and Warehousing' services to the Government.

Therefore, the Court dismissed the appeal, ruling in favor of the Respondent-Assessee and against the Appellant-Revenue. The judgment clarified that the subsidy received for storing sugar did not fall within the scope of 'Storage and Warehousing' services for the purpose of levying service tax. The decision highlighted the distinction between compensation for costs incurred and the provision of services, ultimately emphasizing that the Assessee's actions did not amount to a taxable service under the relevant provisions.