Service tax returns filing date extended to April 30 2017

The arrangement between parties for sharing common storage facilities not chargeable to Service tax

We are sharing with you an important judgment of the Hon’ble Supreme Court of India in the case of M/s Gujarat State Fertilizers and Chemicals Ltd & Anr Vs Commissioner of Central Excise (2016-TIOL-198-SC-ST) on the following issue:

Issue:

Whether handling portion and maintenance including incineration facilities by one party on behalf of another is in the nature of providing ‘Storage and Warehousing Services’ falling under Section 65(105)(zza) of the Finance Act, 1994 (“the Finance Act”) and chargeable to Service tax when the benefits are utilized and expenditures are also incurred by both the parties under an agreement in this regard?

Facts & Background:

M/s Gujarat State Fertilizers and Chemicals Ltd. (“GSFC”) (“the Appellant”) entered into an agreement with M/s. Gujarat Alkalies & Chemical Ltd. (GACL”), for utilizing the Hydro Cynic Acid (HCN) in the ratio of 60:40 for manufacturing of final product, which is received through common pipeline from M/s. Reliance Industries Limited (RIL”) and is taken in an intermittent hold tank which is situated in GSFC premises.

The Appellants are also sharing the expenses on HCN handling and incineration facilities installed by GSFC in terms of the contract i.e. in the ratio of 50:50.

The Appellant was served a Show Cause Notice (SCN”) requiring the deposition of Service tax along with interest and penalty, alleging that GSFC was collecting incineration charges from GACL and said charges amounts to providing of ‘Storage and Warehousing Services’ falling under Section 65(105)(zza) of the Finance Act. Thereafter, GSFC submitted the reply questioning the very basis of the SCN and submitted that the process which was undertaken does not amount to ‘storage facilities’ and GSFC is not providing any service to GACL for which the ‘incineration charges’ were collected. However, the said submission was not accepted by the Adjudicating Authority.

Thereafter, the Appellant preferred an appeal before the Appellate Authority which got dismissed and appeal to CESTAT has also met the same fate, where the order passed by the Adjudicating Authority as well as the Appellate Authority got affirmed. Thus, the Appellant challenged the order of the CESTAT.

Appellant’s view:

It was contended that the holding tank (storage tank) was only for the purpose of sustaining the continuous process of both the plants and to facilitate smooth operation of suction pumps and to avoid any damage thereto. Consequently, nothing was stored in the storage tank. Therefore, the process would not qualify the term ‘Storage’.

It was also argued that no services of ‘Storage and Warehousing’ are provided by GSFC to GACL as there was a prior agreement entered between both the parties relating to the sharing of the expenses in respect of HCN handling and incineration facilities installed by GSFC.

Revenue’s view:

The Department argued that the storage/holding tank would qualify as ‘storage facilities’ as also accepted in the statements given by the representatives of the Appellant. Further, it was submitted that GSFC is providing services and the provisions of Section 65(105)(zza) of the Finance Act were attracted as GSFC is collecting ‘incineration charges’ from GACL.

Held:

The Hon’ble Supreme Court held that in order to attract Service tax, there has to be an element of service provided by one person to the other for which charges are collected. However, the handling portion and maintenance including incineration facilities is in the nature of joint venture between GSFC & GACL, wherein they have simply agreed to share the expenditure and the payment made by GACL to GSFC is the share of GACL which is payable to GSFC. Thus, by no stretch of imagination, it can be treated as ‘service’ provided by GSFC to GACL for which it is charging GACL and accordingly the said demand of Service tax was set aside by the Hon’ble Supreme Court.

Further, the Hon’ble Supreme Court, did not find it necessary to go into the question as to whether receiving of HCN through the common pipeline in the tank setup by the Appellant amounts to storage or not, and the same was left open.

Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

Author of a book on Goods and Services Tax, titled, “GST LAW AND ANALYSIS – WITH CONCEPTUAL PROCEDURES” (2nd Edition)

A2Z TAXCORP LLP

Tax and Law Practitioners

Delhi:

Flat No. 34B, Ground Floor,

Pocket – 1, Mayur Vihar Phase-1

Delhi – 110091 (India)

Tel: +91 11 22757595/ 42427056

Email: bimaljain@hotmail.com

Web: www.a2ztaxcorp.com

We can now also be contacted at below mentioned address:

Bengaluru Kolkata

 

Dhanbad Allahabad Chandigarh

 

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.

Readers are advised to consult the professional for understanding applicability of this newsletter in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.

 

(Visited 141 times, 1 visits today)
http://studycafe.in/wp-content/uploads/2015/05/service-tax-consultants-in-mumbai.jpghttp://studycafe.in/wp-content/uploads/2015/05/service-tax-consultants-in-mumbai-150x150.jpgDeepak GuptaSERVICE TAXCA BIMAL JAIN,service taxThe arrangement between parties for sharing common storage facilities not chargeable to Service tax We are sharing with you an important judgment of the Hon’ble Supreme Court of India in the case of M/s Gujarat State Fertilizers and Chemicals Ltd & Anr Vs Commissioner of Central Excise (2016-TIOL-198-SC-ST) on the...Helping Hand of Professionals