GST UPDATE ON STORAGE VS RENTING SERVICES:- 131/2020-21

The dispute as regards the services provided are of storage & warehousing services or renting services is not new and was prevalent in the erstwhile service tax regime as well. This is primarily due to the fact that storage and warehousing services for agricultural produce are exempt whereas the renting of immovable property services is taxable. This leads to tug of war between the assessee and the department regarding the classification of the said service. This issue was recently considered by Karnataka Appellate Authority for Advance Ruling in the case of M/s KARNATAKA FOOD & CIVIL SUPPLIES CORPORATION and is the subject matter of discussion of the present update.

The appellant is a government of Karnataka undertaking established with a mission to supply food grains and other essential commodities and services to the consumer under the Public Distribution System Scheme to meet its consumer needs. The appellant has entered into an agreement with Central Warehousing Corporation (CWC) for use of storage space at Central Warehouse for storage of Public Distribution System commodities belonging to the appellant. According to the agreement, CWC has provided storage space of 488 sq meters at Belgaum for a consideration of Rs. 126 per sq meter per month or part thereof on gross area basis. CWC was charging GST on storage charges but appellant have not paid GST portion to CWC and has obtained advance ruling on applicability of GST on storage charges. It was held that since advance ruling can be sought only by the supplier or person liable to pay tax, the advance ruling cannot be obtained by the appellant. However, as the authority for advance ruling has pronounced the decision, the merits of the case were taken up by the AAAR.

The AAAR held that from the perusal of the agreement, it is found that the appellant is required to make its own arrangements for insurance of stocks stored and CWC will not be responsible to make good any losses or damages to the goods. The appellant is required to take all permissions for storing the goods and is required to deploy its own security personnel for storage space allotted to them. The appellant cannot sub-let the premises to third party but can undertake painting and install furniture fixtures at their own cost. It was concluded that from the terms of the agreement, it is clear that CWC is merely providing renting services and not providing storage and warehousing services. Consequently, the order of the AAR was upheld by the AAAR.

The above decision seeks to distinguish between the renting services and storage/warehousing services by indicating that storage/warehousing services involves services wherein the risks and security of goods against any damage/loss rests with the supplier of services. In the present case, as the responsibility of loss of goods and that of security was on the appellant being recipient of service, the services provided by CWC were considered as that of renting of space services liable to GST.

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GST UPDATE ON STORAGE VS RENTING SERVICES:- 131/2020-21

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