Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 4066-4067/2015
M/S GUJARAT STATE FERTILIZERS &
CHEMICALS LTD. & ANR. APPELLANT(S)
VERSUS
COMMISSIONER OF CENTRAL EXCISE RESPONDENT(S)
J U D G M E N T
Heard learned counsel appearing for the parties.
These appeals are filed by the appellants which are two
Public Sector Undertakings of the State of Gujarat. They were
served with show cause notice dated 04.05.2011 alleging
therein that the appellant no. 1 (hereinafter referred to as
'GSFC') was collecting 'incineration charges' from M/s.
Gujarat Alkalies & Chemical Ltd. (hereinafter referred to as
'GACL') and the said amount charged by GSFC from GACL amounted
to providing 'Storage and Warehousing Services' falling under
clause (zza) of Sub-Section (105) of Section 65 of the Finance
Signature Not Verified
Act, 1994. The GSFC submitted its reply questioning the very
Digitally signed by
ASHWANI KUMAR
Date: 2016.11.28
16:15:40 IST
Reason:
basis of the said show cause notice and submitted that the
process which was undertaken did not amount to 'Storage
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Facilities' and, in any case, GSFC was not providing any
service to GACL for which the aforesaid 'incineration charges'
were collected. It was explained that though the GSFC and GACL
were receiving Hydro Cynic Acid (HCN) from M/s. Reliance
Industries Limited through common pipeline, which was
partially utilized in their factory for manufacturing of their
final product and was shared between them in the ratio of
60:40, since incineration process was also required to be
undertaken, the charges, which were incurred on the said
process, were also shared in the ratio of 50:50. It was also
mentioned that an agreement was arrived at between GSFC and
GACL on the aforesaid basis and, therefore, there was no
question of providing any services by one party to the other.
This contention of the appellants was not accepted by the
Adjudicating Authority which confirmed the demand of 'service
tax' along with interest and also imposed penalties under
various sections including Section 78 of the Finance Act,
1994. The appellants preferred appeal there-against before the
Commissioner (Appeals) which was dismissed by the Appellate
Authority upholding the order of the Adjudicating Authority.
Further appeal to the Customs Excise & Service Tax Appellate
Tribunal(CESTAT) has met the same fate inasmuch as vide
impugned judgment dated 04.02.2015, the CESTAT has affirmed
the order passed by the Adjudicating Authority as well as the
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Appellate Authority. The present appeals challenge the order
of the CESTAT.
In order to appreciate and understand the matter it
requires to first state the process of receiving the HCN
through pineline and the manner in which it is shared between
GSFC and GACL and also the manner in which 'incineration
charges' are divided between them. The appellants had
explained the same in their reply to the show cause notice.
The relevant portion thereof reads as under:
“G. In the existing procedure of ACH production
in GSFC-PU, HCN is one of the main raw material
HCN is received from M/s. RIL, Vadodara through
pipeline directly by gravity from their plant.
It is taken in an intermittent hold tank which
is situated in GSFC-PU premises. As per
agreement, the quantity of HCN as soon as it is
received is being consumed at 60:40 ratio by
GSFC-PU and GACL - Sodium Cyanide Unit. The
hold tank is there to sustain continuous
process of both the plants and to facilitate
smooth operation of the suction pumps and to
avoid starvation of the pumps. Starvation of
pump is not allowed as it causes damage to the
pump and disturb the process. In case of any
problem at consumers end, HCN supply from M/s.
RIL is stopped, remaining quantity in tank is
immediately consumed by either of the plants.
The question of storing HCN does not arise
because it is not permissible to store HCN on
safety ground. The hold tank is duly washed
and kept empty for further use.”
Insofar as 'incineration charges' are concerned, the
manner in which GSFC and GACL had agreed to share these
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charges between themselves was also explained, as can be seen
from the following portion of the reply to the show cause
notice:
“H. GACL does not pay to GSFC Polymer Unit and
GSFC Polymer Unit does not demand or receive
from GACL any fee or charges nor does either of
them do any work of perform any service to the
other. The sole monetary transaction between
them, vide the agreements/Minutes of the
Meeting, etc., is by way of sharing in the
agreed proportion, the expenses for usage of
storage tank by both of them combinedly for
storage of HCN, for repair and maintenance of
plant, shares for spare consumed in plant,
charges towards power for
incineration/refrigeration steam and other
facilities such as salary, wages and employees
benefit, overheads, factory and administrative
expenses, like telephone expenses, office
expenses, postage expenses, printing and
stationary expenses, security and maintenance,
etc.
I. Thus both GSFC Polymer Unit and GACL
perform and are responsible equally for, the
job of storing and consuming of HCN for their
respective processes and for that purpose they
both bear the total expenses in the
predetermined proportion; but nobody pays to
the other any fee or charges, as nobody does
any kind of service or obligation or work for
the other.”
On the basis of the above, it was argued that GSFC does
not store HCN for GACL and the process cannot be treated as
covered by clause (zza) of Sub-Section 105 of Section 65 of
the Finance Act.
The second submission which was made was that, in any
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case, no service of 'Storage and Warehousing' was provided by
GSFC to GACL and, therefore, question of payment of any
service tax did not arise. Sub-Section (102) of Section 65 of
the Finance Act defines 'Storage and Warehousing' in the
following terms:
“(102) 'Storage and Warehousing' includes
storage and warehousing services for goods
including liquids and gases but does not
include any service provided for storage of
agricultural produce or any service provided by
a cold storage.”
Sub-Section (105) of Section 65 of the Finance Act
enumerates those services which are “taxable services”.
Various kinds of services which are subjected to service tax
are enumerated therein. As mentioned above, we are concerned
with clause (zza) thereof which deals with service pertaining
to 'Storage and Warehousing' of goods. Clause (zza) reads as
under:
“(zza). to any person, by a storage or
warehouse keeper in relation to storage and
warehousing of goods.”
The cumulative reading of the aforesaid provisions makes
it abundantly clear that in order to levy service tax
pertaining to 'Storage and Warehousing' of goods, following
two conditions are required to be satisfied:
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1. The goods in question have to come within four
corners of the definition of 'Storage and Warehousing'
contained in Sub-Section 102 of Section 65 of the
Finance Act, 1994;
2. In order to attract service tax, there has to be
an element of service provided by one person to the
other for which charges for providing such services are
collected.
The appellants have argued that insofar as the present
case is concerned, none of the aforesaid ingredients is
satisfied. As far as the first element, namely 'Storage of
HCN', is concerned, referring to the process mentioned in the
reply to the show cause notice, which we have already
extracted above, it is submitted that the HCN is received
through pipeline and as soon as it is received, the same is
consumed in the ratio of 60:40 between GSFC and GACL. The
holding tank which is described as 'storage tank' for
convenient purposes is there only to sustain the continuous
process of both the plants and to facilitate smooth operation
of suction pumps and to avoid any damage thereto. It is,
thus, argued that nothing is stored in the said so-called
storage tank and, therefore, this process would not qualify
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the term 'Storage'.
Mr. Parag P. Tripathi, learned senior counsel appearing
for the appellants, has referred to the definition of
'storage' contained in Black's Law Dictionary (7th Ed.) as
well as Webster's Comprehensive Dictionary which defines the
term 'store' or 'storage' in the following manner:
“a. As per Black's Law Dictionary (7th Ed.),
the word “store” means to keep goods, etc. in
safekeeping for future delivery in an unchanged
condition;
b. As per Webster's Comprehensive
Dictionary, “ store” as a verb means to put away
for future use, to accumulate, to furnish or
supply to deposit for safekeeping.”
It is argued that from the plain meaning of the word
'store' appearing in the aforesaid dictionaries, it would be
clear that the expression contains an element of continuity of
creating a stock and using that stock on a future date.
According to the appellants, none of these ingredients are
present in the instant case. In support, the learned senior
counsel has also relied upon the judgments of this Court in
Bijaya Kumar Agarwala v. State of Orrisa, (1996) 5 SCC 1 as
well as Indian Oil Corporation v. AP Industrial Infrastructure
Corporation Ltd., (2015) SCC online SC 1290.
The second argument namely no services of 'Storage and
Warehousing' are provided by GSFC to GACL, Mr. Tripathi has
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referred to the agreement/contract which was arrived at
between GSFC and GACL relating to the sharing of the expenses
between them in respect of HCN handling and incineration
facilities installed by GSFC. It is pointed out that HCN
handling and incineration facilities, though were installed at
the premises of GSFC, the expenses thereof were borne by both
the parties. From the said agreement it is also pointed out
that insofar as handling and incineration facilities are
concerned, these are operative expenses for the said system
which were agreed to be shared by the parties equally i.e. in
the ratio of 50:50.
From the aforesaid it was argued that no services were
provided by the GSFC to GACL and on the contrary, the expenses
which were incurred on the maintenance of the said
storage/holding tank were simply shared between the parties in
equal ratio and, therefore, it could not be said that any
service of storage and warehousing was provided by GSFC to
GACL.
Learned counsel for the respondent, on the other hand,
referred to the discussion contained in the order of
Adjudicating Authority as well as Appellate Authority and
submitted that even in the statements given by the
representatives of the GSFC and GACL it was accepted that the
supply of HCN by M/s. Reliance Industries Ltd. was first kept
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in the storage/holding tank and from there it was distributed
between GSFC and GACL in the ratio of 60:40 and, therefore,
the said storage/holding tank would qualify as “storage
facilities”. It was further submitted that since GSFC was
collecting 'incineration charges' from GACL, it was rightly
held that the service was provided by GSFC to GACL and,
therefore, the provisions of clause (zza) of Sub-Section (105)
of Section 65 of the Finance Act, 1994 were clearly
attractive. Learned counsel further argued that these were the
questions of fact on which all the authorities had arrived at
concurrent findings which should not be interfered with by
this Court as the scope of the present appeals is only to deal
with the substantial question of law.
We have considered the aforesaid submissions in the light
of the material placed on record. We shall advert to the
second aspect namely, as to whether the arrangement between
GSFC and GACL amounts to providing any services by GSFC to
GACL and 50% incineration expenses incurred would constitute
charges for providing such services. There is no dispute about
the manner in which HCN is received through pipeline from M/s.
Reliance Industries Ltd. by GSFC and GACL and then shared in
the ratio of 60:40 respectively. GSFC and GACL are public
sector undertakings, as already mentioned above. Since HCN is
to be received through pipeline, it is abundantly clear that
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in order to save the expenditure, both the parties agreed that
there should be a common pipeline. Once HCN is received
through the said common pipeline, it comes first to GSFC's
premises and from there it is diverted in the ratio of 60:40,
meaning thereby that GSFC receives 60% of the HCN whereas GACL
receives 40% of the supply in accordance with their respective
requirement. To enable GACL to receive this HCN through common
pipeline, arrangement/agreement was entered into between these
two parties. For this purpose, handling facilities were
installed in the premises of GSFC. However, fact remains, for
which there is no dispute, that for installation of these
facilities both the parties had contributed towards the
investment. Since the said handling facilities are in the
premises of GSFC, incineration also takes place at the said
premises. Handling facilities expenditure thereof is shared
equally by both the parties. That is clearly provided in the
agreement/arrangement that was agreed to between the parties
and is reflected in the Minutes dated 06.07.1980. Once these
facts are accepted, we find that handling portion and
maintenance including incineration facilities is in the nature
of joint venture between two of them and the parties have
simply agreed to share the expenditure. The payment which is
made by GACL to GSFC is the share of GACL which is payable to
GSFC. By no stretch of imagination, it can be treated as
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common 'service' provided by GSFC to GACL for which it is
charging GACL.
We are, thus, of the opinion that the second ingredient
has not been established in the present case and the question
of service tax does not arise. In view thereof, it is not
necessary to go into the question as to whether receiving of
HCN through the said common pipeline in the tank which is
setup by the GFSC and GACL amounts to 'storage' or not and we
leave the said question open.
For the aforesaid reasons, the demand of 'service tax'
made by the respondent is unwarranted and is hereby set aside.
We, thus, allow these appeals thereby quashing the
Adjudicating Authority's order as well as the order of the
CESTAT.
There shall be no order as to costs.
......................J.
[A.K. SIKRI]
......................J.
[ABHAY MANOHAR SAPRE]
NEW DELHI;
NOVEMBER 22, 2016.
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ITEM NO.3 COURT NO.9 SECTION IIIB
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
I.A. 3-4/2015 in Civil Appeal No(s). 4066-4067/2015
M/S GUJARAT STATE FERTILIZERS &
CHEMICALS LTD. & ANR. ETC. Appellant(s)
VERSUS
COMMISSIONER OF CENTRAL EXCISE ETC. Respondent(s)
(for stay and office report)
Date : 22/11/2016 These appeals were called on for hearing today.
CORAM : HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE ABHAY MANOHAR SAPRE
For Appellant(s) Mr. Prag P. Tripathi, Sr. Adv.
Mr. Preetesh Kapoor, Adv.
Ms. Hemantika Wahi,Adv.
Mr. Kabir Hathi, Adv.
For Respondent(s) Mr. P.K. Mullick, Adv.
Mr. Subhash Acharya, Adv.
Mr. B. Krishna Prasad,Adv.
UPON hearing the counsel the Court made the following
O R D E R
The civil appeals are allowed in terms of the signed
judgment .
Pending application(s), if any, shall be disposed of
accordingly.
(Ashwani Thakur) (Mala Kumari Sharma)
COURT MASTER COURT MASTER
(Signed reportable judgment is placed on the file)