2016 (12) TMI 103 - SC - Service Tax

Joint venture cost-sharing arrangement for incineration facility expenses does not attract service tax under joint venture structure

M/s Gujarat State Fertilizers & Chemicals Ltd. & Another Versus Commissioner of Central Excise

SC held that joint venture arrangement between two companies for sharing incineration facility expenses does not constitute provision of services ... Nature of activity - Sharing of expenditure under joint venture agreement - Storage and Warehousing Services - levy of tax on incineration charges - 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? - Held 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 common 'service' provided by GSFC to GACL for which it is charging GACL - 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. The demand of 'service tax' made by the respondent is unwarranted and is hereby set aside - appeal allowed - decided against Revenue-respondent. Issues:1. Interpretation of the term 'Storage and Warehousing' under the Finance Act, 1994.2. Determination of whether services of 'Storage and Warehousing' were provided by one party to another.3. Analysis of the agreement between the parties regarding the sharing of expenses and incineration charges.Interpretation of the term 'Storage and Warehousing' under the Finance Act, 1994:The case involved two Public Sector Undertakings disputing a show cause notice alleging the collection of 'incineration charges' by one party from the other. The dispute centered around whether the process undertaken qualified as 'Storage and Warehousing' falling under the Finance Act, 1994. The appellants argued that the process of receiving Hydro Cynic Acid (HCN) through a common pipeline did not constitute 'Storage' as defined in the Act. They contended that the holding tank was not used for storage but for continuous process facilitation. The court examined the definitions of 'store' and 'storage' from legal dictionaries to support the argument that the process did not involve traditional storage practices. Additionally, case law precedents were cited to reinforce the argument that the elements of storage were not present in the instant case.Determination of whether services of 'Storage and Warehousing' were provided:The second aspect of the case involved analyzing whether one party provided services of 'Storage and Warehousing' to the other, justifying the collection of incineration charges. The court noted that both parties shared the handling and incineration facilities' expenses equally, indicating a joint venture arrangement. It was highlighted that the expenditure sharing was agreed upon in an arrangement between the parties, and the payment made by one party to the other was merely a share of the expenses, not a charge for services provided. The court concluded that the second element required to levy service tax was not established in the case, leading to the dismissal of the service tax demand.Analysis of the agreement between the parties regarding expense sharing and incineration charges:The court examined the agreement between the parties, emphasizing that the handling and maintenance facilities were a joint venture, and the expenses were shared as per the agreement. It was clarified that the payment made by one party to the other was a share of the expenses incurred, not a charge for services rendered. The court ruled that the demand for service tax was unwarranted based on the nature of the arrangement and the lack of evidence supporting the provision of services for the incineration charges. Consequently, the court set aside the orders of the Adjudicating Authority and the CESTAT, ruling in favor of the appellants.In conclusion, the Supreme Court's judgment revolved around the interpretation of 'Storage and Warehousing' under the Finance Act, 1994, the determination of services provided between the parties, and the analysis of the agreement regarding expense sharing and incineration charges. The court's detailed analysis and interpretation of the legal provisions and agreements led to the dismissal of the service tax demand, ultimately ruling in favor of the appellants.