Supply of tangible goods tax does not apply when possession and effective control pass to Railways under wagon leasing

Leasing of railway wagons to Indian Railways was held outside the scope of supply of tangible goods service because tax liability under that category arises only where possession and effective control remain with the supplier. On the stated facts, the wagons were placed at the disposal of Railways under the scheme and agreement, while operational control and day-to-day maintenance rested with Railways. The transaction therefore did not attract service tax, and the demand was unsustainable. The analysis also followed the Tribunal's earlier ruling in the same line of dispute.

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Issues: Whether leasing of railway wagons to Indian Railways, with possession and effective control transferred, was exigible to service tax under supply of tangible goods service.

Analysis: Liability under the relevant service category arises only where the goods are supplied without transfer of possession and effective control. On the facts, the wagons were placed at the disposal of Railways under the scheme and agreement, with operational control and day-to-day maintenance lying with Railways. The transaction therefore fell outside the scope of supply of tangible goods service. The issue was also covered by the Tribunal's earlier decision in the same line of dispute.

Conclusion: The demand of service tax was not sustainable and the appeal succeeded.

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