The conditions to be met for availing storage service under the Finance Act are mandatory in nature: SC [Case Brief]

Finance act is one of the important act in India as all governmental policies are included in it. Every year through this act the Central Government, in the beginning of the year, gives effect to all financial policies. Thus this act renews itself every year.

Gujarat State Fertilizers & Chemicals Ltd. & Another v. Commissioner of Central Excise

Forum: Supreme Court

Civil Appeal No (S). 4066-4067/2015

Delivered on: – 22 November 2016.

Bench: A. K. Sikri And Abhay Manohar Sapre, JJ.

Relevant Provisions:

1. Section 65 (105) (zza) and 78 of Finance Act, 1994.
2. Section 65 (102) of Finance Act, 1994.

Brief facts:  Appellants are two Public sector undertakings of the Government of Gujarat. GSFC (1st appellant) collects incineration charges from GACL (2nd appellant) for receiving Hydro Cynic Acid from Reliance industries, making certain processes and then distributing the acid as well as the expenditure in the agreed proportion.

Issue: Whether the agreement between GACL and GSFC for incurring half expenditure is in the nature of providing services by one party to another where the goods are shared by both the parties to an agreement?

Arguments of appellant:

  1. The agreement between the two appellants does not specify for any services to be provided in particular. GSFC does not store for GACL, both the companies are bearing expenditure for such storage hence no service is provided.
  2. The sole purpose for a monetary transaction between the appellants was to make an agreed proportion of sharing the Acid and the expenditure.
  3. The tank which is considered as a storage tank is only for continuity of process to provide smooth operation of suction pumps etc., hence there is no storage tank in the present case. There is no storage for purpose of future use as defined under the definition as provided by Black’s Law Dictionary.

Arguments of respondent:

  1. The collection of incinerating charges amount to providing ‘storing and warehousing’ services under clause (zza) of sub-section (105) under section 65 of Finance act, 1994 because GSFC stores the Acid on behalf of GACL.
  2. The acid from Reliance industries was first stored in the storage of GSFC and then later it was distributed in the agreed proportion, hence this amounts to service of storage.
  3. The incinerating charges amount to the consideration for such service of storage as provided by GSFC and such consideration amounts to a taxable value of service.

Held: The demand of service tax was completely unwarranted and is set aside. The sharing of expenses is in the nature of a joint venture and it cannot be termed as a common service. No question of service tax arise.

Decision: Appeal allowed, decided against the Respondent (Revenue).

 Ratio:

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