In the sugar industry, the manufacturer is bound under the law to maintain stock of sugar manufactured as levy sugar for which the Government grants subsidy. The grant is not of the nature of income but only a form of a subsidy, as maintaining sugar stock is a statutory requirement. Is such storage of sugar a taxable service? The income-tax department is asking us to obtain service tax registration.

Akilesh Kumar

Registration under service tax is required when you provide taxable service. Storage and warehousing of sugar are not considered as a taxable service.

In a similar case,

Nawanshahr Cooperative Sugar Mills Ltd vs CCE, Jalandhar (2007 6 STT 18 CESTAT, New Delhi)

, the appellant, a sugar manufacturer, was required to maintain buffer stock as a statutory obligation, for which it received subsidy from the Government taking into account the cost of storage also. While the department demanded service tax on buffer stock so maintained under storage and warehousing services, it was held that since assessee was only storing its own goods in its factory warehouse and the Government had not taken over sugar, there was no storage for the Government and the fact that subsidy includes a cost element towards storage would be no ground to hold that any warehousing service was provided.


Finolex Industries Ltd vs CCE, Pune (2007 5 STR 393; 2006 7 STJ16 CESTAT, Mumbai)

case involved licensing of LPG storage tanks and associated equipment on payment of fee. The tribunal considered the issue, of whether such activity amounted to mere renting of space by the licensor or as being engaged in storage and warehousing, as contentious and ordered part payment of pre-deposit.


State of Madhya Pradesh vs CCE, Gwalior (2007 6 STT 467 CESTAT, New Delhi)

, the State government was required to collect supervision charges under Section 28A of MP Excise Act, 1915 on activities of manufacture, import, export, transport, storage, etc., of Indian made foreign liquor (IMFL) and other intoxicants carried out under the Excise staff’s supervision. It was held that merely because the State government was involved in providing such services, the supervision charges were not liable to service tax. In view of the above case laws, it can be said that the activities of storage and warehousing mentioned in the query are not service taxable. Also, there is no consideration involved.


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(This article was published in the Business Line print edition dated August 20, 2007)
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