Supreme Court Issues Notice On IOCL's Plea Against Service Tax On Crude Oil Storage At Barauni Refinery

The Supreme Court on Monday issued notice on a plea filed by Indian Oil Corporation Limited (IOCL) challenging a Patna High Court ruling.

The High Court had held that the terminal facility used for storing crude oil at its Barauni Refinery amounted to an independent “storage and warehousing” service liable to service tax.

A Bench of Justice Manoj Misra and Justice Vijay Bishnoi briefly heard IOCL's challenge to the High Court ruling before issuing notice. The case concerns whether storage of crude oil at Barauni during its onward transportation constituted a separate taxable warehousing service or was merely part of the overall pipeline transportation service.

IOCL submitted that the storage of crude oil at Barauni was part of the transportation process. It argued that the activity could not be treated as a separate “storage and warehousing” service.

It further submitted that the issue had to be examined in two stages. First, whether the agreement itself contemplated a separate contract for providing terminal services. Second, whether the storage activity could independently fall within the meaning of “storage and warehousing” under the Finance Act, 1994.

The dispute arose from the transportation of crude oil from Haldia to Bongaigaon. The crude oil was transported through a pipeline to Barauni, where it was stored before being moved onwards to Bongaigaon. IOCL's case is that the storage at Barauni was only an intermediate part of this transportation process. It therefore did not constitute an independent warehousing service.

The CESTAT had earlier ruled in favour of IOCL. The Patna High Court, however, reversed the Tribunal's decision and held that the terminal facility constituted an independent taxable service.

The High Court noted that the agreement contemplated a separate consideration for the discharge facility. It held that if the terminal facility was integral to the pipeline transportation service, there would have been no occasion for it to be charged separately.

The High Court accordingly held that the terminal facility at Barauni amounted to an independent “storage and warehousing” service under the Finance Act, 1994. It restored the service tax demand against IOCL.

The Supreme Court has now issued notice on IOCL's challenge to the High Court ruling.

For Petitioner: Charanya Lakshmikumaran