Compulsory buffer stock of own goods is not taxable warehousing service when subsidy only reimburses holding costs.

Compulsory retention of free sale sugar as buffer stock under Government directions did not amount to taxable storage or warehousing service because the mills continued to own the sugar and were not acting as warehouse keepers for a recipient. Reimbursement of storage, insurance and interest costs through subsidy was treated as repayment of holding expenses, not consideration for a taxable service. Extending the storage period under the Government order did not change the character of statutory compliance into a commercial warehousing arrangement, so service tax was not payable on the subsidy.

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Issues: Whether maintaining a specified buffer stock of free sale sugar under Government directions, with reimbursement of storage, insurance and interest costs by way of subsidy, amounts to providing taxable storage and warehousing service under the Finance Act, 1994.

Analysis: The liability under section 65(105)(zza) read with section 65(102) and section 66 of the Finance Act, 1994 arises only when a storage or warehouse keeper provides storage or warehousing service to a person. The sugar mills were required to hold stock pursuant to statutory and governmental directions under the Sugar Development Fund regime, while ownership of the sugar continued to remain with them. The subsidy represented reimbursement of holding costs and not consideration for rendering a storage service to the Government. The fact that the period of storage was extended under the Government order did not convert compliance with the statutory buffer stock requirement into a commercial warehousing activity.

Conclusion: The activity did not amount to taxable storage and warehousing service, and the subsidy received by the sugar mills was not liable to service tax on that basis.

Ratio Decidendi: Compulsory retention of one's own goods under statutory buffer stock directions, with reimbursement of incidental holding expenses, is not consideration for taxable storage and warehousing service unless there is a service rendered by a warehouse keeper to a recipient within the charging provision.

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