2008 (6) TMI 7 - AT - Service Tax

Revenue contend that manufacturing the stock of a specified quantity of free sale sugar by appellant sugar mills for a specified period as per the orders of Government of India, the expenses for which are reimbursed by the Govt., amounts to providing to the Government Storage and Warehousing Service held that just because the storage period of free sale sugar had to be extended at the behest of the GOI, neither the Appellant become storage or warehouse keeper nor the GOI become their client

Summary

Issues:
1. Whether maintaining stock of free sale sugar for a specified period by sugar mills, with reimbursement from the government, amounts to providing storage and warehousing service taxable under the Finance Act, 1994.
2. Whether the entire subsidy amount received by the sugar mills attracts service tax under the Act.

Analysis:

Issue 1:
The dispute revolves around whether the sugar mills providing storage of free sale sugar, as directed by the Government of India and reimbursed through subsidy, constitutes a taxable service under the Finance Act, 1994. The Revenue argued that this activity falls under the definition of "taxable service" in relation to storage and warehousing of goods, making it subject to service tax. The sugar mills contended that the compensation received was not for providing storage and warehousing service but for complying with statutory duties under the Sugar Development Fund Rules. They emphasized that ownership of the goods remained with them during storage, and the subsidy was to cover expenses, not payment for a service provided. The Tribunal analyzed relevant sections of the Act and concluded that the sugar mills did not become storage or warehouse keepers for the government, and the activity did not amount to providing storage and warehousing service. Therefore, the impugned orders were set aside, allowing the appeals of the sugar mills while rejecting the Revenue's appeal.

Issue 2:
The second issue pertains to whether the entire subsidy amount received by the sugar mills is subject to service tax under the Act. The Revenue sought to levy service tax on the subsidy components covering interest on stock, insurance, and storage charges. The CCE (Appeals) had upheld the demand for service tax on storage and insurance charges but set aside the demand on interest charges. The Tribunal's analysis focused on the nature of the subsidy, which was intended to cover specific expenses related to maintaining the stock of sugar. As the Tribunal determined that the activity did not constitute providing storage and warehousing service, the subsidy amount received by the sugar mills was not deemed taxable under the Act. Consequently, the Revenue's appeal was rejected in this regard.

This detailed analysis of the judgment highlights the key arguments presented by both parties, the legal interpretation of relevant provisions, and the Tribunal's ultimate decision on the issues raised in the case.