Customs, Excise and Gold Tribunal - Bangalore
Karnataka State Beverages Corporation ... vs Commissioner Of Service Tax on 24 August, 2007
Equivalent citations: [2008]12STJ29(CESTAT-BANGALORE), 2007[8]S.T.R.481
ORDER T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Order-in-Original No. 08/2006 dated January 31, 2006 passed by the Commissioner of Service Tax, Bangalore.
2. The appellants, M/s. Karnataka State Beverages Corporation Ltd., Bangalore, are engaged in the activity of purchasing and selling liquor in terms of the licence issued to them by the Karnataka Government. The Revenue conducted certain investigations and came to the conclusion that the appellants provided the "services of the storage of goods" which are taxable under the category of "storage and warehousing services" in terms of the Finance Act, 1994. Therefore, the Revenue proceeded against the appellant proposing demand of the service tax and also the penal provisions. The adjudicating authority passed the impugned order. He confirmed an amount of Rs. 65,47,829 being the service tax payable by the appellants on the total value of the taxable service rendered by them for the period from July, 2003 to March, 2005 under Section 73 of the Finance Act, 1994. Interest under Section 75 was also imposed. Penalty at the rate of Rs. 200 per day was imposed under Section 76 of the Finance Act. Penalty of Rs. 1,000 was imposed under Section 77 of the Act. The adjudicating authority also imposed a penalty of Rs. 1 crore on the assessee under Section 78 of the Act. The appellants are highly aggrieved over the impugned Order-in-Original. Hence, they have come before this Tribunal for relief.
3. S/Shri K.S. Ravi Shankar and N. Anand, the learned Advocates appeared for the appellants and Smt Sudha Koka, the learned SDR, for the Revenue.
4. We heard both sides.
5. The learned Advocates, appearing on behalf of the appellants, invited our attention to the various records and stated that the appellant M/s. Karnataka State Beverages Corporation Ltd., Bangalore, is a Government of Karnataka Unit. In terms of the statutory provisions relating to the Liquor Distribution Act, this Corporation is only authorised to purchase liquor both Indian and foreign made from the manufacturers/distillery of Kamataka and also from other States. They are also authorised to sell this liquor to various wholesalers who are provided with the requisite licences. In other words, the distribution of liquor is done through this Corporation. The appellants purchase liquor from various distilleries. Now, in order to store the liquor purchased, they hire storage bases from Karnataka State Warehousing Corporation (KSWHC), Central Warehousing Corporation (CWC) and other private godowns. The liquor, which has been purchased from the various manufacturers/distilleries, is stored in the storage godowns. Afterwards, the liquor is sold to various wholesalers who are holding appropriate licences from the Karnataka State Government. It is seen from the agreement that the appellants actually purchase liquor and then later, they are sold. This is very clear from the agreement entered by the appellant with the distilleries. However, if the liquor sold is not lifted within 90 days, the appellant-Corporation charges a demurrage fee of Rs. 2 per day from the manufacturer. It is not very clear as to why this fee is charged from the manufacturers because once the liquor is purchased by the Corporation, we do not understand how it is the manufacturer's responsibility to sell them in time. Anyhow, we do not want to comment anything on this aspect in the absence of the proper record. However, it is a fact that the appellants charged demurrage from the manufacturers. Now, the Revenue's case is that whatever amount is charged as demurrage from the manufacturer/suppliers it is shown in the profit and loss account as "storage charges". As the appellants collect the storage charges, they are liable to discharge the service tax liability on the storage charges collected. It is the contention of the Revenue that the demurrage charges collected by the appellants would fall within the category of "storage and warehousing service" charges and, therefore, they would be liable to discharge the service tax under the Finance Act, 1994. The Commissioner of Service Tax, has relied on the Board's clarification in its circular dated July 9, 2001 issued in the context of port services. In terms of the circular, "demurrage charges are recovered by port authority as a rental for storage of goods. The fact that the charges apply only if the goods overstay a prescribed free period, does not detract from their being in the nature of a charge for providing a service in relation to goods. Accordingly, they would form part of taxable value". The Commissioner has given a finding that what is applicable to port services would also be applicable to the storage and warehousing services. Therefore, he confirmed the demand and levied various penalties for non-compliance of the service tax provisions. The appellants forcefully argued that they actually do not render any storage services to anyone. Their point is that they, actually, are in the business of purchasing and selling liquor. Therefore, the appellants actually hired the storage base from various corporations like KSWHC, CWC, certain private godowns, etc., in order to store the liquor purchased by them. It cannot be said that the appellants render storage services to themselves. The appellants purchase liquor. They have to be stored. In order to store them, they hire various storage bases and they incur expenditure in connection with the storage. In these circumstances, it is their contention that it cannot be said that they are rendering services to themselves.
6. Another point argued by the learned Advocates is that merely because of the fact that in their profit and loss accounts, the charges were mentioned as storage charges, it cannot be considered as storage charges coming within the ambit of the Finance Act, 1994. They relied on certain decisions of the Supreme Court, which hold that "the substance of the transaction would prevail over form and that nomenclature of a transaction is not determinative of the nature of a transaction".
(i) In the case of Delhi Stock Exchange Association Ltd. v. Commissioner of Income-tax, Delhi , it has been held that "it was not how the assessee treated any monies received but what was the nature of the receipts in question that was decisive of their taxability; and, therefore, the fact that the appellant-company showed the admission fees as capital in its books was not decisive on the question of their' taxability."
(ii) The honourable apex court in Sutlej Cotton Mills Ltd. v. Commissioner of Income-tax held "it is now well-settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries, which are not in conformity with the proper principles of accountancy, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee.
7. It is also seen that the adjudicating authority has recorded the following findings:
Though the assessee provides insurance cover, security arrangement and bears the electricity charges and rent in respect of the godowns, no amount is charged from the recipient of service. The expenditure on those accounts are borne by the assessee out of the profit margin earned on the sale of liquor. Since the value of taxable service shall be the gross amount charged by the service provider and in the present case, only storage fee was realised from the recipient of service, the storage fee alone shall be taken into consideration for the purpose of determination of service tax liability.
8. It is very clear that the appellants incur expenditure for insuring the goods which they have purchased for the security arrangement and even for the electricity charges and also the rent in respect of the godowns. All these factors would indicate that the appellants receive these services in respect of their own goods. In other words, we cannot hold that the appellants render these services to the manufacturers because the appellants have already purchased the goods from the manufacturers.
9. The learned Advocate also invited our attention to the meaning of the expression "demurrage". "Demurrage" means the charge levied for the detention of any rolling stock after expiry of the free time, if any, allowed for such detention, according to Advanced Law Lexicon by P. Ramanatha Aiyar, Third Edition, 2005. The apex court, in the case of Trustees of the Port of Madras v. Aminchand Pyarelal has held that the "demurrage is a charge levied, and not a service.... Besides, it is plain that the Board has used expression 'demurrage' not in the strict mercantile sense but merely to signify a charge, which may be levied on goods after the expiration of free days". Further, the apex court, in the case of Sun Export Corporation v. Board of Trustees of the Port of Bombay AIR 1998 SC 92 has held "....In the context of goods remaining in the wharfage demurrage implies a charge which the port trust can levy at a particular rate if the goods remain on the dock beyond a specified time".
10. In view of the above decisions, the learned Advocate argued that the amount collected towards demurrage cannot be termed as storage charges for purposes of levy of the service tax.
11. On a very careful consideration of the entire issue, we find that the appellant-corporation has been established for the distribution of liquor within the State of Karnataka by purchase and sale of liquor from the various manufacturers and distilleries. Since the liquor is purchased by them, the same has to be stored also. Therefore, the appellants incur various expenditure towards the storage of the liquor. Only when the liquor is not lifted within 90 days, the demurrage charges are levied from the supplier Strictly speaking, we cannot consider this as a charge collected for storage of the goods because once the appellant-corporation purchases the goods, the ownership no longer vests with the manufacturer. So, even if it is considered that the appellants are rendering the services of storage and warehousing, such service is only in respect of the goods owned by them for which, no service tax can be levied. We also find that from the bill of Karnataka State Warehousing Corporation raised on the appellant that they charge service tax at the rate of 10 per cent and education cess at two per cent in respect of the charges collected from them for hiring the storage bases to them. In our view, the appellants are only recipients of the services of storage and warehousing and it cannot be said that they are providing the services of storage and warehousing so that they would be liable to payment of service tax under that category in terms of the Finance Act, 1994. The fact that they record the charges collected as "storage charges" would alone be not a proper reason for treating them as storage charges in view of the decisions of the honourable apex court holding that the substance of a transaction would prevail over the form. In view of our above observations, we do not find any merit in the impugned order. There is also no justification for imposing such a savage penalty on a State Government Corporation. In these circumstances, we allow the appeal with consequential relief, if any.