M/S GUJARAT STATE FERTILIZERS & CHEMICALS LTD.&ANR.versusCOMMISSIONER OF CENTRAL EXCISE

                         [2016] l I S.C.R. 755


      M/S GUJARAT STATE FERTILIZERS & CHEMICALS                           A
                     LTD.&ANR.
                                  v.
             COMMISSIONER OF CENTRAL EXCISE
               (Civil Appeal Nos. 4066-4067 of 2015)                      8
                       NOVEMBER 22, 2016
     [A. K. SIKRIAND ABHAY MANOHAR SAPRE, JJ.]
        Finance Act, 1994: ss.65(105)(zza), 65(102) - Two PSUs --
 GSFC and GA CL-Both the companies receiving Hydro Cynic Acid             c
 (HCN) ji-om RIL through common pipeline and utilising the same in
 their respective factories and sharing the incineration charges -
 Allegation that GSFC was collecting 'incineration charges' from
 GACL and the said amount charged by GSFCjimn GACL amounted
 to providing 'storage and warehousing services' falling under            D
 s.65(105){zza)-Held: To enable GACL to receive this HCN through
 common pipeline, arrangement/agreement was entered into between
 these two companies - For this purpose, handling facilities were
 installed in the premises of GSFC - Howeve1; for installation of
 these facilities both "he parties had contributed towards the            E
 investment- Since the said handling facilities were in the premises
 of GSFC, incineration is also taking place at the said premises -
 Handling facilities expenditure thereof is shared equally by both
 the parties - Once these facts are accepted, handling portion and
 maintenance including incineration facilities is in the nature ofjoint
                                                                          F
 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 - Thus, it
 cannot be treated as common 'service 'provided by GSFC to GACL
 for which it is charging GACL- Since there is no element ofservice
 provided by GSFC, the question of service tax would not arise -          G
 Demand of 'service tax' made by the respondent is unwarranted
      Allowing the appeals, the Court
      HELD: In order to levy service tax pertaining to 'Storage
                                                                          H
                                 755
756         SUPREME COURT REPORTS                    f2016l 1l S.C.R.


A and Warehousing' of goods, two conditions are required to be
  satisfied: The goods in question have to come within four corners
  of the definition of 'Storage and Warehousing' contained in Sub-
  Section 102 of Section 65 of the Finance Act, 1994; and there has
  to be an element of service provided by one person to the other
B for which charges for providing such services are collected. There
  is no dispute about the manner in which HCN is received through
  pipeline from Mis. Reliance Industries Ltd. by GSFC and GACL
  and then shared in the ratio of60:40 respectively. GSFC and GACL
  are public sector undertakings. Since HCN is to be received
c through pipeline, it is abundantly clear that in order to save the
  expenditure, both the parties agreed that there should be a
  common pipeline. Once HCN is received through the said
  common pipeline, it comes first to GSFC's premises and from
  there it is diverted in the ratio of 60:40, meaning thereby that
  GSFC receives 60% of the IICN whereas GACL receives 40%
D
  of the supply in accordance with their respective requirement.
  To enable GACL to receive this HCN through common pipeline,
  arrangement/agreement was entered into between these two
  parties. For this purpose, handling facilities were installed in the
  premises of GSFC. However, fact remains, for which there is no
E dispute, that for installation of these facilities both the parties
  had contributed towards the investment. Since the said handling
  facilities are in the premises of GSFC, incineration also takes
  place at the said premises. Handling facilities expenditure thereof
  is shared equally by both the parties. That is clearly provided in
F the agreement/arrangement that was agreed to between the
  parties and is reflected in the Minutes dated 06.07.1980. Once
  these facts are accepted, 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
G 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 second
  ingredient has not been established in the present case and the
 H
      MIS GUJARAT STATE FERTILIZERS & CHEMICALS                             757
       LTD. v. COMMISSIONER OF CENTRAL EXCISE

  question of service tax does not arise. In view thereof, it is not         A
  necessary to go into the question as to whether receiving ofHCN
· through the said common pipeline in the tank which is setup by
  the GFSC and GACL amounts to 'storage' or not and is left open.
 The demand of 'service tax' made by the respondent is
  unwarranted and is hereby set aside. [Paras 8, 15, -16 and 17]             B
  [760-F-G; 762-G-H; 763-A-G]
       Bijaya Kumar Agarwala v. State of Orrisa (1996) 5
       SCC 1 : (1996) 4 Suppl. SCR 249; Indian Oil
       Corporation v. AP Industrial Infrastructure Corporation
       Ltd. (2015) SCC 1290 - referred to.                                   C
                         Case Law Reference
 (1996) 4 Suppl. SCR 249          referred to              Para 11
 (2015) sec 1290                  referred to              Para 11
                                                                             D
       CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4066-
 4067 of 2015.
       From the Judgment and Order dated 04.02.2015 of the Customs,
 Excise & Service Tax Appellate Tribunal, West Zone Bench, Ahmedabad
 in Appeal No. ST/13303/2013 and No. ST/I 0589/2013.                         E
       Prag P. Tripathi Sr. Adv., Preetesh Kapoor, Ms. Hemantika Wahi,
 Kabir Hathi, Advs. for the Appellants.
       P. K. Mullick, Subhash Acharya, B. Krishna Prasad, Advs. for
 the Respondent.
                                                                             F
       The following Judgment of the Court was delivered
                           JUDGMENT
       1. Heard learned counsel appearing for the parties.
        2. These appeals are filed by the appellants which are two Public    G
 Sector Undertakings of the State of Gujarat. They were served with
 show cause notice dated 04.05.2011 alleging therein that the appellant
 no. I (hereinafter referred to as 'GSFC') was collecting 'incineration
 charges' from Mis. GujaratAlkalies & Chemical Ltd. (hereinafter referred
 to as 'GACL') and the said amount charged by GSFC from GACL
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758           SUPREME COURT REPORTS                       r20l6l ll S.C.R.



A amounted to providing' Storage and Warehousing Services' falling under
  clause (zza) of Sub-Section (I 05) of Section 65 of the Finance Act, 1994.
  The GSFC submitted its reply questioning the very basis of the said show
  cause notice and submitted that the process which was undertaken did
  not amount to 'Storage Facilities' and, in any case, GSFC was not
B providing any service to GACL for which the aforesaid 'incineration
  charges' were collected. It was explained that though the GSFC and
  GACL were receiving Hydro Cynic Acid (HCN) from Mis. Reliance
  Industries Limited through common pipeline, which was partially utilized
  in their factory for manufacturing of their final product and was shared
c between them in the ratio of60:40, since incineration process was also
  required to be undertaken, the charges, which were incurred on the said
  process, were also shared in the ratio of50:50. It was also mentioned
  that an agreement was arrived at between GSFC and GACL on the
  aforesaid basis and, therefore, there was no question of providing any
  services by one party to the other. This contention of the appellants was
D
  not accepted by the Adjudicating Authority which confinned the demand
  of' service tax' along with interest and also imposed penalties under
  various sections including Section 78 of the Finance Act, 1994. The
  appellants preferred appeal there-against before the Commissioner
  (Appeals) which was dismissed by the Appellate Authority upholding the
E orderoftheAdjudicatingAuthority. Further appeal to the Customs Excise
  & Service Tax Appellate Tribunal(CESTAT) has met the same fate
  inasmuch as vi de impugned judgment dated 04.02.2015, the CE STAT
  has affirmed the order passed by the Adjudicating Authority as well as
  the Appellate Authority. The present appeals challenge the order of the
F CESTAT.
          3. In order to appreciate and understand the matter it requires to
  first state the process ofreceiving tht: HCN through pine line and the
  manner in which it is shared between GSFC and GACL and also the
  manner in which 'incineration charges' are divided between them. The
G appellants had explained the same in their reply to the show cause notice.
  The relevant portion thereof reads as under:
            "G In the existing procedure ofACH production in GSFC-PU,
            HCN is one of the main raw material HCN is received from Ml
            s. RIL, Vadodara through pipeline directly by gravity from their
H
+




          M/S GUJARAT STATE FERTILIZERS & CHEMICALS                               759
           LTD. v. COMMISSIONER OF CENTRAL EXCISE

           plant. It is taken in an intermittent hold tank which is situated in    A
           GSFC-PU premises. As per agreement, the quantity ofHCN as
           soon as it is received is being consumed at 60:40 ratio by GSFC-
           PU and GACL- Sodium Cyanide Unit. The hold tank is there to
           sustain continuous process of both the plants and to facilitate
           smooth operation of the suction pumps and to avoid starvation of        B
           the pumps. Starvation of pump is not allowed as it causes damage
           to the pump and disturb the process. In case of any problem at
           consumers end, HCN supply from Mis. RIL is stopped, remaining
           quantity in tank is immediately consumed by either of the plants.
           The question of storing HCN does not arise because it is not            c
           permissible to store HCN on safety ground. The hold tank is
           duly washed and kept empty for further use."
           4. Insofar as 'incineration charges' are concerned, the manner in
    which GSFC and GACL had agreed to share these charges between
    themselves was also explained, as can be seen from the following portion       D
    of the reply to the show cause notice:
           "H. GACL does not pay to GSFC Polymer Unit and GSFC
           Polymer Unit does not demand or receive from GACL any fee
           or charges nor does either of them do any work of perform any
           service to the other. The sole monetary transaction between             E
           them, vide the agreements/Minutes of the Meeting, etc., is by
           way of sharing in the agreed proportion, the expenses for usage
           of storage tank by both of them combinedly for storage ofHCN,
           for repair and maintenance of plant, shares for spare consumed
           in plant, charges towards power for incineration/refrigeration          F
           steam and other facilities such as salary, wages and employees
           benefit, overheads, factory and administrative expenses, like
           telephone expenses, office expenses, postage expenses, printing
           and stationary expenses, security and maintenance, etc.
           I. Thus both GSFC Polymer Unit and GACL perform and are                 G
           responsible equally for, the job ofstoring and consuming ofHCN
           for their respective processes anq for that purpose they both
           bear the total expenses in the predetermined proportion; but
           nobody pays to the other any fee or charges, as nobody does any
           kind of service orobligation or work forthe other."                     H
760            SUPREME COURT REPORTS                         [2016] 11 S.C.R.


A            5. On the basis of the above, it was argued that GSFC does not
      store HCN for GACL and the process cannot be treated as covered by
      clause (zza) of Sub-Section I 05 of Section 65 of the Finance Act.
             6. The second submission which was made was that, in any case,
      no service of' Storage and Warehousing' was provided by GSFC to GACL
 I3   and, therefore, question of payment of any service tax did not arise.
      Sub-Section (102) of Section 65 of the Finance Act defines 'Storage and
      Warehousing' in the following terms:
              "(102) 'Storage and Warehousing' includes storage and
              warehousing services for goods including liquids and gases but
 c            does not include any service provided for storage ofagricultural
              produce or any service provided by a cold storage."
             7. Sub-Section (I 05) of Section 65 of the Finance Act enumerates
      those services which are "taxable services". Various kinds of services
D     which are subjected to service tax are enumerated therein. As mentioned
      above, we are concerned with clause (zza) thereof which deals with
      service pertaining to 'Storage and Warehousing' of goods. Clause (zza)
      reads as under:
              "(zza). to any person, by astorage or warehouse keeper in relation
 E            to storage and warehousing of goods."
              8. The cumulative reading of the aforesaid provisions makes it
      abundantly clear that in order to levy service tax pertaining to 'Storage
      and Warehousing' of goods, following two conditions are required to be
      satisfied:
 F
              I. The goods in question have to come within four corners of the
              definition of'Storage and Warehousing' contained in Sub-Section
              I 02 of Section 65 of the Finance Act, 1994;
              2.I In order to attract service tax, there has to be an element of
 G            service provided by one person to the other for which charges
              for providing such services are collected.
              9. The appellants have argued that insofar as the present case is
      concerned, none of the aforesaid ingredients is satisfied. As far'as the
      first element, namely 'Storage'Jf.HCN', is concerned, referring to the
H     process mentioned in the reply to the show cause notice, which we have
      MIS GUJARAT STATE FERTILIZERS & CHEMICALS                                  761
       LTD. v. COMMISSIONER OF CENTRAL EXCISE

already extracted above, it is submitted that the HCN is received through         A
pipeline and as soon as it is received, the same is consumed in the ratio
of60:40 between GSFC and GACL. The holding tank which is described
as 'storage tank' for convenient purposes is there only to sustain the
continuous process of both the plants and to facilitate smooth operation
of suction pumps and to avoid any damage thereto. It is, thus, argued             B
that nothing is stored in the said so-called storage tank and, therefore,
this process would not qualify the term 'Storage'.
       10. Mr. Parag P. Tripathi, learned senior counsel appearing for
the appellants, has referred to the definition of'storage' contained in
Black :S Law Dictionary (7th Ed.) as well as Webster :S Comprehensive             C
Dictionary which defines the term 'store' or 'storage' in the following
manner:
        "a. As per Black :S Law Dictionmy (7th Ed.), the word "store"
        means to keep goods, etc. in safekeeping for future delivery in
        an unchanged condition;                                                   D
        b. As per Webster :S Comprehensive Dictionary, "store" as a
        verb means to put away for future use, to accumulate, to furnish
        or supply to deposit for safekeeping."
       11. lt is argued that from the plain meaning of the word 'store'            E
appearing in the aforesaid dictionaries, it would be clear that the expression
contains an element of continuity of creating a stock and using that stock
on a future date. According to the appellants, none of these ingredients
are present in the instant case. In support, the learned senior counsel has
also relied upon the judgments of this Court in Bijava Kumar Agarwala              F
v. State o[Orrisa, (1996) 5 SCC I as well as Indian Oil Corporation
v. AP Industrial Infrastructure Corporation Ltd.. (2015) SCC on line
SC 1290.
       12. The second argument namely no services of 'Storage and
Warehousing' are provided by GSFC to GACL, Mr. Tripathi has referred               G
to the agreement/contract which was arrived at between GSFC and
GACL relating to the sharing of the expenses between them in respect
ofHCN handling and incineration facilities installed by GSFC. It is pointed
out that HCN handling and incineration facilities, though were installed
at the premises ofGSFC, the expenses thereof were borne by both the
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762             SUPREME COURT REPORTS                         f20 l 6] 11 S.C.R.



A     parties. From the said agreement it is also pointed out that insofar as
      handling and incineration facilities are concerned, these are operative
      expenses for the said system which were agreed to be shared by the
      parties equally i.e. in the ratio of 50:50.
             13. From the aforesaid it was argued that no services were
B     provided by the GSFC to GACL and on the contrary, the expenses which
      were incurred on the maintenance of the said storage/holding tank were
      simply shared between the parties in equal ratio and, therefore, it could
      not be said that any service of storage and warehousing was provided by
      GSFC to GACL.
c             14. Learned counsel for the respondent, on the other hand, referred
      to the discussion contained in the orderofAdjudicating Authority as well
      as Appellate Authority and submitted that even in the statements given
      by the representatives of the GSFC and GACL it was accepted that the
      supply ofHCN by Mis. Reliance Industries Ltd. was first kept in the
D     storage/holding tank and from there it was distributed between GSFC
      and GACL in the ratio of60:40 and, therefore, the said storage/holding
      tank would qualify as "storag~ facilities". It was further submitted that
      since GSFC was collecting' incineration charges' from GACL, it was
      rightly held that the service was provided by GSFC to GACL and,
 E    therefore, the provisions of clause (zza) of Sub-Section ( 105) of Section
      65 of the Finance Act, 1994 were clearly attractive. Learned counsel
      further argued that these were the questions of fact on which all the
      authorities had arrived at concurrent findings which should not be
      interfered with by this Court as the scope of the present appeals is only
 F    to deal with the substantial question oflaw.
         15. We have considered the aforesaid submissions in the light of
  the material placed on record. We shall advert to the second aspect
  namely, as to whether the arrangement between GSFC and GACL
  amounts to providing any services by GSFC to GACL and 50%
G incineration expenses incurred would constitute charges for providing
  such services. There is no dispute about the manner in which HCN is
  received through pipeline from Mis. Reliance Industries Ltd. by GSFC
  and GACL and then shared in the ratio of60:40 respectively. GSFC and
  GACL are public sector undertakings, as already mentioned above. Since
H HCN   is to be received thrmigh pipeline, it is abundantly clear that in
       MIS GUJARAT STATE FERTILIZERS & CHEMICALS                                   763
        LTD. v. COMMISSIONER OF CENTRAL EXCISE

order to save the expenditure, both the parties agreed that there should            A
be a common pipeline. Once HCN is received through the said common
pipeline, it comes first to GSFC's premises and from there it is diverted
in the ratio of 60:40, meaning thereby that GSFC receives 60% of the
HCN whereas GACL receives 40% of the supply in accordance with
their respective requirement. To enable GACL to receive this HCN                    8
through common pipeline, arrangement/agreement was entered into
between these two parties. For this purpose, handling facilities were
installed in the premises ofGSFC. However, fact remains, for which
there is no dispute, that for installation of these facilities both the parties
had contributed towards the investment. Since the said handling facilities          c
are in the premises ofGSFC, incineration also takes place at the said
premises. Handling facilities expenditure thereof is shared equally by
both the parties. That is clearly provided in the agreement/arrangement
that was agreed to between the parties and is reflected in the Minutes
dated 06.07.1980. Once these facts are accepted, we find that handling
pmiion and maintenance including incineration facilities is in the nature           D
ofjoint 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.                                                 E
       16. We are, thus, of the opinion that the second ingredient has not
been established in the present case and the question of service tax does
not arise. In view thereof, it is not necessary to go into the question as to
whether receiving ofHCN through the said common pipeline in the tank
                                                                                    F
which is setup by the GFSC and GACL amounts to 'storage' ornot and
we leave the said question open.
       17. For the aforesaid reasons, the demand of 'service tax' made
by the respondent is unwarranted and is hereby set aside. We, thus,
allow these appeals thereby quashing theAdjudicatingAuthority's order               G
as well as the order of the CESTAT.
        18. There shall be no order as to costs.


Devika Gujral                                                   Appeals allowed.
                                                                                    H