Statutory supervision levy is not consideration for storage and warehousing service; service-tax demand therefore failed.

A statutory supervision levy collected under an excise law, even when linked to liquor storage, was treated as a statutory charge and not consideration for a taxable storage and warehousing service under the Finance Act, 1994. Because the levy was not payment for a service actually rendered by the assessee, the basis of the service-tax demand failed and the related demands could not be sustained. On the constitutional point, Article 289 was held not to bar Union taxation merely because the activity involved a State levy, as the exemption is confined to State property and income; however, that objection did not cure the defect in the service-tax demand.

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Issues: Whether supervision charges levied under Section 28-A of the Madhya Pradesh Excise Act, 1915 on storage of liquor constituted consideration for taxable "storage and warehousing service" under the Finance Act, 1994, and whether Article 289 of the Constitution of India barred levy of service tax on the State's activity.

Analysis: The charges were imposed by the State Government as a statutory levy for supervision by Excise staff over specified activities, including storage, and not as payment for any service rendered by the State as a storage or warehouse keeper. The mere fact that supervision was connected with storage did not convert the levy into consideration for a taxable service. The basis of the demand therefore failed on the statutory nature and character of the levy. On Article 289, the exemption is confined to property and income of a State, and does not bar Union taxation where the levy is not on such protected subjects. The constitutional objection thus did not assist the appellants, but that did not cure the defect in the service-tax demand.

Conclusion: The supervision charges were not taxable as storage and warehousing service, and the impugned service-tax demands and related orders could not be sustained.

Final Conclusion: The appeals succeeded because the statutory levy for excise supervision was held not to be consideration for a taxable service under the service-tax law.

Ratio Decidendi: A statutory supervision levy collected under an excise law, even if linked to storage activity, is not consideration for taxable storage and warehousing service unless it is shown to be payment for a service actually rendered by the assessee.

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