Buffer stock subsidy received by sugar manufacturers is compensation for loss of interest and so not leviable to service tax.

PJ/Case Law/2013-14/1670

Case:-COMMISSIONER OF CENTRAL EXCISE, PUNE Vs KUMBHI KASARI SSK LTD, SHREE CHHATRAPATI RAJARAM SSK LTD,SHREE T K WARANA SSK LTD.

Citation:-2013-TIOL-1085-CESTAT-MUM

Brief facts:-The appellants are manufacturers of sugar. The Directorate of sugar, Government of India, directed the appellants to keep a buffer stock of sugar in their factory for which they paid buffer stock subsidy. The revenue was of the view that the appellants had rendered a service to Government of India for which they received a consideration and therefore, the subject transaction is liable to the service tax under the category of “storage and warehousing services”. Accordingly, notices were issued and demands were confirmed along with interestapart from imposing penalties. The appellants preferred an appeal before the lower appellate authority, who allowed the appeals on the ground that the activity cannot be considered as a service as the goods belonged to appellant themselves and the storage was undertaken in respect of appellant's own goods; therefore, no service has been rendered. The lower appellate authority also held that the demands were time barred. Revenue is aggrieved of these decisions and is before Tribunal.

Appellant’s Contentions:-The Appellant reiterated the grounds urged in the appeal memorandum.

Respondent’s Contentions:-The Respondent submits that the issue has been settled in favour of the respondents by the decision of the Hon'ble High Court of Punjab & Haryana in the case of Nahar Industrial Enterprises Ltd., reported in2010 (19) STR-166 (P&H) = (2010-TIOL-547-HC-P&H-ST )wherein it was held as follows:

From the perusal of 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 himself. 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 to directions of government of India issued under Sugar Development Fund Act, 1982. The Respondent-Assessee has received subsidy not on account of services rendered to 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 Respondent- Assessee cannot be called as 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 Government of India, neither the Appellant- Revenue sugar mills becomes `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.

Reasoning of Judgment:-We have carefully considered the submissions made by both the sides and also perused the decision of the Hon'ble High Court of Punjab & Haryana in the case of Nahar Industrial Enterprises Ltd. The facts involved in the said case are identical to those in the appeals before Tribunal. Therefore, respectfully following the decision of the Hon'ble High Court of Punjab & Haryana, we dismiss the appeals filed by the Revenue as devoid of merits.

Decision:-Revenue appeal dismissed.

Comment:-The analogy that is drawn from this case is that storage of sugar with a view to comply with the directions of the government and consequently subsidy received by the assessee would not be leviable to service tax under the service of ‘storage and warehousing’ as no service is being provided by the assessee to the government. The subsidy is in the nature of compensation for loss of interest, cost of insurance etc.

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PJ/Case Law/2013-14/1670

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