Refund of service tax on railway contract services upheld where the activity was not taxable and tax was contractually borne by the contractor.

Service tax paid on railway contract services was refundable where the services were not exigible to tax and the contract price was inclusive of all taxes and duties. The tax element, if paid, was borne by the contractor and did not increase the service value. As no service tax was payable on the services provided to the railways, and the circular clarified the exemption position for such railway contract activity, the refund claim was maintainable and the amount paid was refundable.

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Issues: Whether the respondent was entitled to refund of Service Tax paid on railway contract services which were not exigible to tax.

Analysis: The contract price between the railways and the respondent was inclusive of all taxes and duties, so the tax element, if paid, was borne by the respondent and did not increase the service value. It was also an admitted position that no Service Tax was payable on the services provided to railways, and the circular clarified the exemption position for such railway contract activity.

Conclusion: The refund claim was maintainable and the amount paid as Service Tax was refundable to the respondent.

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