Full Judgment
2. This appeal is directed against the order of the Commissioner (Appeals), Gwalior, made on 29th March, 2004 upholding the order-in-original imposing the penalty of Rs. 500/- under Section 75-A of the Finance Act, 1994, for failure to apply for registration under Section 69 within the prescribed time limit, and further penalty of Rs. 1000/- under Section 77 of the said Act for failure to furnish ST-3 return under Section 70 of the Act read with Rule 7 of the Service Tax Rules, 1944 with the direction to obtain Service Tax Registration and pay Service Tax due forthwith, with interest and file ST-3 returns.
3. A show cause notice came to be issued on 04.11.2003 against the Assistant District Excise Officer of the Madhya Pradesh State Excise Warehouse on the ground that neither Service Tax Registration was taken nor Service Tax was deposited in respect of service/warehouse charges collected since 2002 and that no half yearly returns were filed.
3.1 The appellants by its reply dated 04.11.2003 contended that, the Department of the State Government neither purchases liquor nor sells the liquor and the manufacturer directly sold the liquor to the retail contractor under the supervision of the Department, and such sale and purchase cannot be treated as business and trade by the Government. It was also contended that as per Article 289(1) of the Constitution of India, the Central Government cannot levy any taxes on income and property of a State.
3.2 The Deputy Commissioner while considering the question, whether the Excise Department of the State Government was providing taxable service, "Storage and Warehousing Service"; and whether the State Government was exempted from Service Tax under Article 289(1) of the Constitution, came to a finding, in view of the decision of the Supreme Court In re Sea Customs Act (1878), Section 20(2) reported in AIR 1963 SC 1760, wherein it was held that the provisions of Article 289 of the Constitution do not preclude the Union from imposing or authorizing the imposition of customs duties on the import or export of the property of a State used for purposes other than those specified in Clause (2) of that Article, nor do the provisions of Article 289 preclude the Union from imposing or authorizing the imposition of excise duties on the production or manufacture in India on the property of a State used for purposes other than those specified in Clause (2) of that Article (see paragraph 31), that the "Storage and Warehousing Service" was not exempt from Union taxation under Article 289(1) of the Constitution and that the said activity was a commercial activity falling within the purview of Service Tax. Therefore, warehousing of Indian made foreign liquor fell within the purview of Service Tax under the category of "Storage and Warehousing Service" and the Excise Department of the State Government was required to take registration and file return.
4. The Commissioner (Appeals) found that, there was nothing in Clause (1) of Article 289 of the Constitution that would prevent the Union from imposing or authorizing imposition of any tax in respect of a trade or business of any kind carried on by or on behalf of the Government of a State. He held that the services rendered by the appellants were liable to service tax requiring registration and filing of returns. It appears from the record that, though it was contended that the supervision charges were levied under Section 28-A of the Madhya Pradesh Excise Act, 1915, this issue was not at all considered, after noting it in paragraph 4 of the impugned order.
5. This appeal has been preferred against the order of the Commissioner (Appeals) upholding the order-in-original and taking a similar view and holding that, from a bare perusal of the provisions of Article 289(2) of the Constitution of India wherein it was explicitly provided that nothing contained in Clause (1) of Article 289 shall prevent the Union from imposing any tax in respect of a trade or business of any kind carried on by or on behalf of State Government. It was also held that appellants' contention on the basis of Article 289(1) was untenable and that it was abundantly clear that the income arising to the appellants to the extent of 5% ex-godown price of liquor warehoused, would clearly fall within the ambit of Section 65 of Finance Act, 1994 w.e.f 16.08.2002. While considering the contention that the Excise Department of the Government had levied the charges as supervision charges, which did not fall within the ambit of the provisions of Service Tax Rules, 1994, the Appellate Commissioner held that, the services provided by the appellants squarely fall within the ambit of taxable services and the charges recovered were subject to payment of the Service Tax.
6. The present appeals have been filed by the State of Madhya Pradesh through the Assistant District Excise Officer against the Commissioners, who have made the impugned orders. Therefore, it is not a dispute between the State and the Union of India in their Constitutional capacity. We, therefore, proceed to hear the appeals.
7. There is no dispute over the fact that the Service Tax is sought to be charged on the supervision charges imposed by the State Government under Section 28-A of the Madhya Pradesh Excise Act, 1915. According to the Revenue, by levying such supervision charges in respect of storing, the appellants were engaged in providing taxable services of the category of "Storage and Warehousing Services" on which Service Tax was levied w.e.f. 16.08.2002 by Notification dated 01.08.2002 under Section 66 of the Finance Act, 1994. "Storage and Warehousing" was defined in Section 65(102) as under: Storage & Warehousing includes storage & warehousing services for goods including liquids and gases but does not include any services provided for storages of agricultural produce or any service provided by a cold storage.
Taxable storage and warehousing service, in view of the provisions of Section 65(105)(zza), was service provided to any person by a storage or warehouse keeper in relation to storage & warehousing of goods. The value of such taxable service was gross amount charged from the customer for such service.
8. Under Section 28-A of the Madhya Pradesh Excise Act, 1915, the State Government was required to collect supervision charges as 'levy', as may be imposed by it in the following terms: The State Government may by general or special order in writing direct the manufacturer, import, export, transport, storage, sale, purchase use, collection or cultivation of any Intoxicant, denatured spirituous preparations or hemp shall be under the supervision of such Excise staff as the Excise Commissioner may deem proper to appoint in this behalf and that the person manufacturing, importing, exporting, transporting, storing, selling, purchasing, using collecting or cultivating the intoxicant or denatured spirituous preparations shall pay to the State Government towards the supervision charges as levy as may be imposed by the State Government in this behalf: Provided that the State Government may exempt any class of person or any institution from paying the whole or any part of such levy.
8.1 It will be clear from the above provision that the "levy" could be imposed by a general or special order by the State Government in cases where it was directed that the manufacture, import, export, transport, storage etc. of any intoxicant or denatured spirituous preparations or hemp shall be under the supervision of the Excise staff appointed by the Excise Commissioner for the purpose. In cases where such direction was issued, the person carrying on such activity of manufacture, import, export, transport, storage etc. was required to pay to the State Government supervision charges 'as levy', as may be imposed, by the State.
8.2 Undisputedly, the charges levied at 5% were levied under Section 28-A of Madhya Pradesh Excise Act, 1915. The charges were levied in the context of supervision by the Excise staff over any of the enumerated activities including storage. Simply because the Excise staff was required to supervise these activities including that of storage, it cannot be said that the State Government was providing such services involved in such activities. Therefore, supervision charges imposed 'as levy' by the State Government were not charges recovered for any 'Storage or Warehouse Services", but were simply supervision charges imposed by general or special order 'as levy'. As clearly stated in the grounds of appeal, without any dispute being raised against it, it is only under the scheme of distribution of IMFL, that 5% amount was charged for the supervision as stipulated under Section 28-A of Madhya Pradesh Excise Act, 1915. Therefore, by no stretch of imagination, such levy of supervision charges can be described as consideration for services provided for storage and warehousing. Therefore, the entire basis for the demand is erroneous.
9. As regards the provisions of Article 289 of the Constitution of India, it is a settled legal position that the exemption provided is of property and income of State from Union taxes and since, the import or export duties or excise duties were not taxes on property including the goods as such, but on the happening of a certain event in relation to the goods, namely, import or export of goods or production or manufacture of goods, Article 289 did not de-bar the Union from levying customs and excise duties on goods imported or manufactured by a State irrespective of whether they were used or not used for the purposes of trade and business. [See In re Sea Customs Act (1878), Section 20(2).
reported in AIR 1963 SC 1760]. Therefore, the conclusion arrived at by the authorities below, on the reading of the provision of Article 289(1), deserves to be upheld. Since the levy imposed under the State law was in the context of supervision provided by the Excise staff over various activities including storage, the nature of the levy was in no way comparable with the charges of "Storage and Warehouse Services".
Therefore, the impugned orders made against the appellants cannot be sustained and are hereby set aside.