2023 (8) TMI 1236 - AT - Service Tax

Tribunal sets aside service tax demand for misclassified services.

M/s. Total Energies Marketing India Pvt. Ltd. Versus Commissioner of GST & Central Excise

The Tribunal allowed the appeal in favor of the appellant, setting aside the service tax demand concerning the classification of services under 'Storage ... Nature of transaction - Service or sale - Classification of service - Storing and Warehousing service or erection, commissioning and maintenance etc. - appellant supplied, installed, commissioned and undertaken maintenance of the bullets which was designed to store LPG meeting BIS standards - interest - penalty - HELD THAT:- The issue of classification has reached finality in the appellants’ own case [2018 (6) TMI 198 - CESTAT CHENNAI]as no appeal has been filed against the orders passed by this Tribunal for the earlier period on the same subject. The issues relating to “Storage and warehousing service” was clarified vide Letter F. No. B11/1/2002-TRU dated 1.8.2002 - None of these activities (as mentioned in the letter) are seen to be provided by the appellant to the customers, further unlike in a warehouse, the goods (LPG) stored in the ‘bullet’ storage facility installed at the customers premises is not under the control of the appellant and the whole responsibility of the stored LPG is with the customer. Hence, they are not covered under the category of Storage and Warehousing Services as defined under Section 65(102) of the Finance Act, 1994. The legal issue has also reached a finality on merits. It is not deemed necessary to examine the issue raised by Revenue of whether “deemed sale” is involved or not and whether payment of VAT was necessary, at this stage. Since the issue is decided on merits in the appellants favour the other issues like payment of interest, penalty etc. do not survive. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts charged as 'lease rentals' for erection, commissioning, installation and maintenance of on-site LPG storage units ('bullets') constitute consideration for 'Storage and Warehousing Services' as defined in Section 65(102) of the Finance Act, 1994. 2. Whether the nature of control over the goods stored in the on-site bullets is determinative of classification as storage and warehousing service. 3. Whether the activity of providing on-site bullets and charging lease rentals ought to be treated as a 'deemed sale' under Article 366(29A) of the Constitution, with implication of VAT instead of service tax (raised but not decided on merits). 4. Consequentially, whether interest and penalty under the Finance Act are payable where the impugned levy of service tax on such lease rentals is disallowed on merits. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification as 'Storage and Warehousing Services' (Legal framework) Legal framework: The scope of 'Storage and Warehousing Services' under Section 65(102) of the Finance Act, 1994, as amplified by departmental clarification F. No. B11/1/2002-TRU dated 1.8.2002, which describes storage and warehousing services as provision of space, loading/unloading, stacking, inventory, security and insurance for all kinds of goods by public/private warehouses and similar agencies. Precedent Treatment: The Tribunal had previously decided in the appellant's own earlier matters that similar activities did not constitute storage and warehousing services; those orders were not appealed by the department and thus attained finality (relied upon by the appellant). Interpretation and reasoning: The Court examined the factual matrix and the TRU clarification. The essential features of storage and warehousing services include active provision of space and attendant services (loading, unloading, stacking, inventory, security, insurance). The activities performed by the service provider here were limited to supply, installation, commissioning and maintenance of storage bullets located at customers' premises; the bullets did not function as warehouses under the service provider's control. Critically, the appellant did not exercise custody or control over the stored LPG; the customers retained responsibility and control. Therefore the core attributes enumerated in the TRU clarification and the statutory definition are absent. Ratio vs. Obiter: Ratio - the provision of on-site storage units (bullets) where the service provider does not exercise control or perform the suite of warehousing functions cannot be classified as 'Storage and Warehousing Services' under Section 65(102). Obiter - none material on this point beyond supporting reasoning. Conclusion: The amounts charged as lease rentals for installation/maintenance of bullets are not consideration for 'Storage and Warehousing Services' as defined in Section 65(102) of the Finance Act, 1994; the impugned service tax demand on that basis is not sustainable. Issue 2 - Role of control over goods in classification (Legal framework) Legal framework: Classification turns on the nature of the service rendered; the TRU clarification and statutory definition emphasize provider's role in arranging space and related services and implicitly require control/management features associated with warehousing. Precedent Treatment: The Tribunal's prior decisions in related appeals (final and unchallenged by Department on the monetary limit) were treated as binding on the factual/legal issue for the same appellant and activity. Interpretation and reasoning: The Court held that the 'real test' is who has control over the goods stored. Since control, custody and responsibility for the LPG rested with the customers - and not with the appellant who merely installed/maintained equipment - the activity lacks the essential element of warehousing. Location of the storage (being on the customer's premises) does not alter the analysis; what matters is the absence of warehouse-type services and control by the provider. Ratio vs. Obiter: Ratio - absence of control by the alleged service provider over goods stored in the facility negates classification as storage and warehousing service. Obiter - a remark that warehouse location is not determinative for taxing a service (supportive but not the decisive point). Conclusion: The absence of provider control over LPG stored in on-site bullets precludes treatment of the lease rentals as consideration for storage and warehousing services. Issue 3 - Deemed sale under Article 366(29A) and VAT vs. service tax (Legal framework) Legal framework: The concept of 'deemed sale' under Article 366(29A) and the mutual exclusivity doctrine between VAT and service tax were raised by the appellant. Precedent Treatment: The appellant relied on prior Tribunal orders favourable on classification; the Department challenged characterization as deemed sale but had not pursued appeals against Tribunal orders resolving the same activity. Interpretation and reasoning: The Court noted the appellant's alternate plea that the activity was a deemed sale and that VAT had been paid, but observed that since classification as a service was decided in the appellant's favour on merits, it was unnecessary to adjudicate the separate revenue-law question of deemed sale or VAT liability at this stage. The Tribunal therefore refrained from expressing any view on these contentions. Ratio vs. Obiter: Obiter - the remarks declining to decide the deemed sale and VAT questions are non-decisional for this appeal; no ratio established on the deemed sale point. Conclusion: Deemed sale and VAT issues were not decided; resolution of the service classification rendered determination of these alternate contentions unnecessary in the present appeal. Issue 4 - Liability for interest and penalty where service classification disallowed Legal framework: Interest and penalty consequences flow from a sustained service tax demand under the Finance Act, 1994. Precedent Treatment: None specifically applied beyond general principle that ancillary liabilities fall away if primary demand is set aside. Interpretation and reasoning: Having held that the impugned levy of service tax on lease rentals is unsustainable on merits, the Tribunal concluded that associated demands for interest and penalty could not survive because they derive from the primary tax demand which has been quashed. Ratio vs. Obiter: Ratio - where primary service tax liability is annulled on merits, consequential interest and penalty relating to that liability do not subsist. Conclusion: Interest and penalty confirmed in the impugned adjudication are not sustainable and therefore do not survive the decision setting aside the service tax demand. Cross-references and Final Disposition Refer to the TRU clarification (F. No. B11/1/2002-TRU dated 1.8.2002) and the Tribunal's earlier final orders on identical subject-matter for the appellant - both integral to the reasoning that the activity lacks the statutory attributes of storage and warehousing. On that basis the impugned order confirming service tax, interest and penalty is set aside; appeal allowed with consequential relief.