2018 (3) TMI 634 - AT - Service Tax

Tribunal relieves appellant from Service Tax liability on railway wagon lease rent under exclusionary clause

The Tribunal allowed the appeal by the appellant, setting aside the previous order and relieving the appellant from the Service Tax liability on the lease ... Supply of Tangible Goods - long-term lease - exclusionary clause of Section 65(105)(zzzzj) - situs of taxable event - reverse charge mechanism - proviso to Rule 3(iii)Supply of Tangible Goods - long-term lease - exclusionary clause of Section 65(105)(zzzzj) - situs of taxable event - Long-term lease of wagons to the Railway under the 'Own Your Wagon' scheme does not attract service tax as 'Supply of Tangible Goods' under the amendment w.e.f. 16.05.2008. - HELD THAT: - The Tribunal applied the reasoning in the earlier decision of Petronet LNG Ltd. and the exposition in the Supreme Court decision in 20th Century Finance Corporation , holding that where a long-term agreement vests the right to use movable property on execution of the contract and delivery, the taxable event is the contract/delivery and not a day-to-day use. The stipulation for periodic hire in such agreements is a commercial mechanism for computation and does not convert the transaction into a recurring supply attracting service tax. On that construction, the long-term leasing arrangement for wagons falls within the exclusionary ambit of Section 65(105)(zzzzj) and is not liable to service tax. [Paras 7, 8]Impugned order sustaining service tax on the lease rent is set aside; the lease is not taxable as 'Supply of Tangible Goods' under the said provision.Reverse charge mechanism - proviso to Rule 3(iii) - place of provision/situs - The appellant is not liable under the reverse charge mechanism in view of the proviso to Rule 3(iii) because the wagons were not traceable/located in India during the relevant period. - HELD THAT: - Relying on the same factual finding that the wagons, after the expiry of the lease period, were retained by the Railway and were not located/traceable within Indian territory, the Tribunal held that the condition for invoking reverse charge under the proviso to Rule 3(iii) is not satisfied. Consequently, no service tax liability arises on the appellant under reverse charge in respect of those wagons. [Paras 6, 7]No service tax liability arises on the appellant under the reverse charge provision; the demand under this mechanism is unsustainable.Final Conclusion: Following precedent, the Tribunal held that the long-term lease arrangement for wagons is excluded from service tax as a supply of tangible goods under Section 65(105)(zzzzj) and, since the wagons were not located/traceable in India, the reverse charge under the proviso to Rule 3(iii) does not apply; the impugned order is set aside and the appeal is allowed. Issues:Interpretation of Service Tax liability on lease rent for railway wagons under the Own Your Wagon Scheme.Analysis:The appellant, engaged in cement manufacturing, used private railway sidings to dispatch cement to railway wagons. In 1992, the railways introduced the Own Your Wagon Scheme, allowing the appellant to purchase and lease wagons to railways for 20 years. The wagons merged into the railway pool under railway control. The Finance Act, 1994, brought the lease rent under Service Tax as 'Supply of Tangible Goods.' The department issued a show cause notice demanding Service Tax under Section 65(105)(zzzzj), alleging lease rent as 'Supply of Tangible Goods.'During the hearing, it was noted that the amendment in the Finance Act came into effect in 2008, while the agreement was executed in 1997. The appellant's counsel mentioned that the 20-year period had passed, and the railway did not provide information about the wagons, which were now untraceable. Referring to a similar case, the Tribunal observed that the taxable event occurred upon agreement and delivery of the wagons, not on a daily basis. The Tribunal concluded that long-term agreements for movable property fell within the exclusionary clause of Section 65(105)(zzzzj), making the appellant not liable for Service Tax due to the wagons not being located in India throughout the lease period.Based on the precedent set by earlier orders, the Tribunal found no justification to uphold the impugned order demanding Service Tax. Therefore, the appeal by the appellant was allowed, setting aside the previous order and relieving the appellant from the Service Tax liability on the lease rent for railway wagons under the Own Your Wagon Scheme.