Whether renting of storage tanks can be treated as storage and warehousing service?

PJ/CASE LAW/2015-16/2944

Case:-INOX AIR PRODUCTS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIGAD

Citation:- 2014 (36) S.T.R. 391 (Tri. - Mumbai)

Brief facts:- The appellants were engaged in the manufacture and sale of various gases. For the manufacture of their final product, the appellants were importing liquid helium. The liquid helium is to be stored at extremely low temperature i.e. minus (-) 269°C. The liquid helium was procured, stored and transported through vacuum insulated tanks. The appellants were placing purchase orders with the foreign supplier for the import of helium and the helium was being supplied in the vacuum insulated tanks. The appellants also agreed to pay rent for the use of tank in transportation of the liquid helium. The helium was imported into India in the tanks. The same was transported to the factory and was used in the manufacture of their final product. The tank was thereafter re-exported.
The lower authority confirmed the demands of service tax along with interest and penalties were also imposed on the ground that the appellants had received storage and warehousing service from the foreign service provider hence the appellants were liable to pay service tax in view of the provisions of Section 66A of the Finance Act read with Rule 2(l)(d)(iv) of the Service Tax Rules, 1994 on reverse charge mechanism.

Appellant’s contention:- The contention of the appellants was that the appellants were engaged in the manufacture and sale of various gases. For the manufacture of their final product, the appellants were importing liquid helium. The liquid helium was to be stored at extremely low temperature i.e. minus (-) 269°C. The liquid helium was procured, stored and transported through vacuum insulated tanks. The appellants were placing purchase orders with the foreign supplier for the import of helium and the helium was being supplied in the vacuum insulated tanks. The appellants also agreed to pay rent for the use of tank in transportation of the liquid helium. The helium was imported into India in the tanks. The same was transported to the factory and was used in the manufacture of their final product. The tank was thereafter re-exported. The ownership of the tanks remained with the exporter and the possession and effective control of the tank was with the appellants as per the terms of the purchase order. The appellants also undertook essential activities like unloading and keeping a stock of the helium stored in the tank.
The contention was that such activity could not be termed as ‘storage and warehousing service’ as provided under Section 65(102) of the Finance Act. The appellants relied upon the provisions of Section 65(105)(zza) of the Finance Act to submit that the taxable service in relation to storage and warehousing as any service provided or to be provided to any person, by a storage or warehousing keeper in relation to storage or warehousing of goods. In the present case, the foreign supplier was not providing any warehousing activity, as after the clearance from the customs, the tank was in the effective control of the appellants and the activities like unloading, keeping the stock of the helium were done by the appellants. The appellants relied upon the Board Circular F. No. B11/1/2002-TRU, dated 1-8-2002, whereby the Board has clarified the scope of storage and warehousing service. The appellants also relied upon the decision of the Tribunal in the case of Finolex Industries Ltd. v. CCE, Pune reported in 2007 (7)S.T.R.408, where the LPG storage tanks were rented to BPCL for consideration and the Revenue sought to tax the consideration so received under the category of ‘storage and warehousing service’. The Tribunal set aside the demand. In these circumstances, the contention was that the demands were not sustainable.
The appellants also submitted that as per the definition of ‘storage and warehousing’, both the activities were to be undertaken, i.e. storage as well as warehousing.

Respondent’s contention:-The contention of the Revenue was that the appellants were importing helium in the tanks and the helium was stored in the tanks in the factory premises of the appellants and that service was provided by the foreign service provider i.e. the exporter of the helium. In these circumstances, the appellants were liable to pay service tax on reverse charge mechanism.
The Revenue also submitted that the appellants were paying consideration for the use of the tanks. The appellants were also separately paying for helium and separately paying the rent of the storage tanks to the exporter of the helium. As the appellants were separately paying consideration amount in respect of storage of helium in the tanks and the same was imported into India and the tanks were further kept in the factory, therefore the appellants were liable to pay service tax as recipient of storage and warehousing service provided by the Foreign Service provider.

Reasoning of judgement:- It was observed that in the present case, the demands were confirmed under ‘storage and warehousing service’. As per the provisions of Section 65(102) of the Finance Act, ‘storage and warehousing’ includes storage and warehousing service for goods including liquid and gases but does not include any service provided for storage of agricultural produce or any service provided by cold storage.
Further it was observed that as per the provisions of Section 65(105(zza) of the Finance Act, ‘taxable service’ means any service provided to any person by a storage or warehousing keeper in relation to storage or warehousing of goods. The Board vide circular dated 1-8-2002 clarified regarding the scope of warehousing service. The relevant portion of the circular was reproduced below:

“3. Storage and warehousing service for all kind of goods are provided by public warehouses, private warehouses, by agencies such as the Central Ware Housing Corporation, Air Port Authorities, Railways, Inland Container Depots, Container Freight Stations, storage godown and tankers operated by private individuals etc. The storage and warehousing service provider normally make arrangement for space to keep the goods, loading, unloading and stacking of goods in the storage area, keeps inventory of goods, makes security arrangements and provide insurance cover etc.
5. It has been stated that in some case a storage owner only rents the storage premises. He does not provide any service such as loading/unloading, stacking, security etc. A point has been raised as to whether service tax would be leviable in such cases. It is clarified that mere renting of space cannot be said to be in the nature of service provided for storage or warehousing of goods. Essential test is whether the storage keeper provides for security of goods, stacking, loading/unloading of goods in the storage area.”

In the present case, admitted facts were that the appellants were importing helium in the tanks. As the helium was to be stored at extremely low temperature i.e. - 269ºC hence the same was imported and transported in vacuum insulated tanks. Admittedly, the appellants were paying rent in respect of the insulated tanks in which helium was imported. The appellants were paying rentals calculated from the date of bill of lading ex-Dubai till the date of bill of lading ex-Mumbai towards the shipment of empty container from Mumbai to New York. During the transportation of tanks, it was observed that the exporter had no control over the tanks. After clearance from the Customs in India, the appellants undertook the activity of unloading and loading of the tanks and transportation to their factory. In the factory, the appellants were also keeping the inventory of stocks of helium in the tanks. As per the Board circular, the storage and warehousing service provider normally makes arrangement for space to keep the goods, loading, unloading and stacking of goods in the storage area, keeps inventory of goods, makes security arrangements and provides insurance cover etc. The Board further clarified that in some cases a storage owner only rents the storage premises and does not provide any service such as loading, unloading etc. It had been clarified that mere renting of space cannot be said to be in the nature of service provided for storage and warehousing of goods. Essential test was whether the storage keeper provides for security of goods, stacking, loading/unloading of the goods in the storage area.
In view of the above circular, it was observed that the exporter of helium cannot be held to be a storage and warehouse keeper as he had no control over the tanks.
In view of the above, it was observed merit in the contention of the appellants that the appellants had not received any service classifiable under ‘storage and warehousing service’.

Decision:- Appeal allowed.

Comment:- For a service to be classified under ‘storage and warehousing service’, it is necessary that the storage keeper provides for security of goods, stacking, loading/unloading of goods in the storage area. Mere renting of space cannot be said to be in the nature of service provided for storage or warehousing of goods. In the present case, the exporter of helium gas was providing special storage tanks. It was noticed that during the transportation of tanks, the exporter had no control over the tanks. It was observed that the exporter of helium could not be held to be a storage and warehouse keeper. Hence, the appellant was not liable to pay tax under reverse charge mechanism for import of service.

Prepared By- Sharad Bang

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PJ/CASE LAW/2015-16/2944

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