CourtKutchehry

Supreme Court Rules Auction Proceeds of Abandoned Cargo Not Taxable as Storage or Warehousing Services

Revenue’s review petition dismissed for delay and lack of merit; Court upholds CESTAT’s view that no service recipient exists in such cases

Judgment clarifies that auction proceeds are sale consideration, subject to VAT or sales tax, not service tax

By Our Legal Reporter

New Delhi, September 18, 2025:
In a significant ruling for the logistics and shipping industry, the Supreme Court of India has reaffirmed that auction proceeds from abandoned or unclaimed cargo cannot be taxed as storage or warehousing services. The Court dismissed the Revenue Department’s review petition against Container Corporation of India Ltd. (CONCOR), citing both delay and lack of merit in the case.

The decision, delivered by a bench of Justice J.B. Pardiwala and Justice R. Mahadevan, upholds earlier findings of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), which had ruled that such proceeds are sale consideration and not payment for any taxable service.

Case Background

The dispute dates back to a show cause notice issued by the Service Tax Department to CONCOR, alleging non-payment of service tax amounting to over ₹5.12 crore for the period 2010 to 2015.

The department argued that amounts retained by CONCOR from the auction of abandoned cargo—under Section 150(2)(d) of the Customs Act, 1962—were essentially storage and warehousing charges, and therefore taxable under the Finance Act’s service tax provisions.

CESTAT’s Findings

The Adjudicating Authority dropped the demand, and the Revenue appealed to CESTAT. The Tribunal upheld the lower authority’s decision, making several key observations:

No Service Recipient: In the case of abandoned cargo sold through auction, there is no identifiable recipient of any storage or warehousing service.
Nature of Proceeds: The money received from the auction is sale consideration for goods, not a fee for storage.
Applicable Tax: Such proceeds may attract sales tax or VAT, but not service tax.
Precedents: The Tribunal relied on earlier rulings, including Balmer Lawrie & Co. Ltd. and India Gateway Terminal (P) Ltd., which had consistently held that service tax could not be levied on auction proceeds of unclaimed goods.

Supreme Court Proceedings

The Revenue challenged CESTAT’s decision before the Supreme Court. On January 6, 2025, the apex court dismissed the civil appeal as time-barred, though it left the question of law open.

Undeterred, the Revenue filed a review petition—with a delay of 127 days—seeking reconsideration of the dismissal.

Supreme Court’s Observations

The bench found no satisfactory explanation for the delay. More importantly, it held that no case for review was made out, even on merits.

“After going through the earlier order and the record, we find no reason to interfere with the dismissal of the Revenue’s appeal,” the Court said in its order.

The Court dismissed the review petition both on the ground of delay and on merits, effectively closing the matter.

Legal Significance of the Ruling

This judgment provides clarity on the tax treatment of auction proceeds from abandoned cargo, a recurring issue in the logistics sector.

Key takeaways:

No Service Without a Recipient: For a levy of service tax (or GST in the current regime), there must be a service provider and a service recipient. In abandoned cargo auctions, this relationship does not exist.
Sale vs Service: Auction proceeds are sale consideration for goods, not payment for a service.
Jurisdictional Clarity: Such proceeds fall under the ambit of sales tax/VAT laws, not service tax laws.

Industry Impact

The ruling is expected to benefit container freight stations (CFSs), port operators, and logistics companies that handle unclaimed cargo.

By removing the threat of retrospective service tax demands on auction proceeds, the decision:

Reduces litigation risk for operators.
Provides certainty in tax compliance.
Aligns with international trade practices, where sale of abandoned goods is treated as a commercial transaction, not a service.

Expert Reactions

Tax professionals have welcomed the decision as a logical interpretation of the law.

“The Court has reinforced the principle that tax liability must be based on the true nature of a transaction, not on administrative convenience,” said a senior indirect tax consultant.

Logistics industry representatives say the ruling will help streamline operations and reduce unnecessary disputes with tax authorities.

Customs Act Provisions Involved

Section 48: Allows the sale of unclaimed imported goods after 30 days of unloading, with Customs’ permission.
Section 150: Governs the distribution of sale proceeds from such auctions, including deductions for expenses and charges.
Section 150(2)(d): Permits the custodian to retain certain amounts from the sale proceeds.

Past Precedents

The Supreme Court’s stance aligns with earlier CESTAT rulings:

Balmer Lawrie & Co. Ltd.: Held that auction proceeds are not consideration for storage services.
India Gateway Terminal (P) Ltd.: Reiterated that no service tax is payable on sale proceeds of unclaimed cargo.

The Road Ahead

While the ruling pertains to the pre-GST service tax regime, its reasoning could influence GST-era disputes involving similar issues. Under GST, the definition of “supply” is broader, but the principle that a supply requires a recipient remains relevant.

Tax experts advise logistics operators to:

Maintain clear documentation of abandoned cargo auctions.
Ensure proper accounting of sale proceeds under VAT/GST laws.
Be prepared to cite this judgment in case of future disputes.

In the Court’s words:

“No interference is warranted with the dismissal of the Revenue’s appeal.”

With this ruling, the Supreme Court has provided much-needed clarity, ensuring that auction proceeds from abandoned cargo remain outside the scope of service tax—a decision that could save the industry from years of avoidable litigation.