Commissioner, Central Excise Commissionerate vs Nahar Industrial Enterprises Ltd.

Ashutosh Mohunta, J.—This judgment shall dispose of S.T.A. No. 8 of 2009, C.E.A. Nos. 35 to 39 of 2009 as common questions of law arise in all these appeals. The facts are being extracted from S.T.A. No. 8 of 2009.

The Revenue has filed this appeal u/s 35G of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 (for the brevity called, "the Act"), challenging the final Order No. ST/113-119/08 dated June 20, 2008, passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (for the brevity called, "the Tribunal").

The Tribunal in the aforementioned order has taken a view that the storage of sugar by the respondent-assessee at the behest of Government of India neither makes the respondent-assessee "storage or warehouse keeper" nor the Government of India client. The Tribunal has set aside the demand raised by the appellant-Revenue. The Revenue has claimed by filing this appeal that the following questions of law would arise for determination by this Court:

(i) Whether service tax is chargeable on buffer subsidy claimed from the Government of India on account of storage of free sale sugar, under the category of "storage and warehousing" as defined u/s 65(105)(zza) read with Section 65(102) of the Finance Act, 1994 ?

(ii) Whether the definition of "storage and warehousing" as contained in Clause (102) of Section 65 of the Finance Act, 1994 does not encompass storage and warehousing, if carried out on receipt of subsidy amount compensating for the storage of the goods other than agriculture produce or any other service provided by a cold storage ?

(iii) Whether the gross amount claimed as buffer subsidy shall be the amount on which the service tax under the category of "storage and warehousing" should be discharged ?

The brief facts of the case are that the respondent-assessee is engaged in the manufacture of sugar. The Central Government vide letter No. 6-5/ 2002/19-457 dated January 23, 2003 directed the respondent-assessee to maintain a buffer stock of 3790 MT of sugar for the period from February 18, 2002 to December 17, 2004 of free sale sugar. The said quantity of buffer stock was further revised from 3790 MT to 4010 MT vide letter dated June 9, 2003. To compensate the respondent-assessee, the Government of India extended buffer subsidy towards storage, interest and insurance charges for the said buffer stock of sugar.

The appellant-Revenue issued a show-cause notice to the respondent-assessee raising a demand of service tax amounting to Rs. 11,50,955 alleging that the amount received by the respondent-assessee as buffer subsidy is covered within the definition of "storage and warehousing" services. The adjudicating authority vide its order-in-original dated July 13, 2006 confirmed the demand of service tax and further imposed penalty under Sections 75, 76 and 77.

Feeling aggrieved from the aforesaid order-in-original, the respondent-assessee filed an appeal before the Commissioner (Appeals), who vide its order-in-appeal dated May 7, 2007 partially vacated the demand of service tax and confirmed the remaining. The Commissioner (Appeals) upheld the levy of penalty also.

The appellant-Revenue as well as the respondent-assessee filed appeals before the Tribunal assailing the order-in-appeal passed by the Commissioner (Appeals). The Tribunal vide its common final order dated June 20, 2008 dismissed the appeal of the appellant-Revenue and allowed the appeal filed by the respondent-assessee holding that storage of specified quantity of free sale sugar for a specified period to comply with the provisions of the Sugar Development Fund Act, 1982 cannot be treated as providing "storage and warehousing" services to the Government of India.

It is apt to notice Section 65(105)(zza) and Section 65(102) of the Finance Act, 1994 before we proceed further. Both sections read as under:

(105)(zaa) ''any service provided to any person, by a storage or warehouse keeper in relation to storage and warehousing of goods.''

(102) ''storage and warehousing'' includes storage and warehousing services for goods including liquids and gases but does not include any service provided for storage or agricultural produce or any service provided by a cold storage.

From a perusal of the above quoted sections, it is apparent that service tax can be levied only if service of "storage and warehousing" is provided. Nobody can provide service to himself. In the present case, it is undisputed that the respondent-assessee stored the goods owned by itself. After the expiry of storage period, the respondent-assessee was free to sell to the buyers of its own choice. The dealer-assessee has stored goods in compliance with the directions of Government of India issued under the Sugar Development Fund Act, 1982. The respondent-assessee has received subsidy not on account of services rendered to the Government of India but has received compensation on account of loss of interest, cost of insurance, etc., incurred on account of maintenance of stock. The act of the respondent-assessee cannot be called rendering of services. The Tribunal has rightly held that just because the storage period of free sale sugar had to be extended at the behest of the Government of India, neither the sugar mills become "storage and warehouse keeper" nor the Government of India become their client in this regard. The storage of specific quantity of free sale sugar cannot be treated as providing "storage and warehousing" services to the Government of India.

In view of the above, the appeal is bereft of merit and deserves to be dismissed. The appeal is accordingly dismissed and the questions of law are answered in favour of the respondent-assessee and against the appellant-Revenue.