2022 (2) TMI 901 - AT - Service Tax

Appellants' Transfer of Railway Wagons to Indian Railways Deemed Sale under Constitution

M/s. MSPL LTD Versus Commissioner of Central Excise and Customs, BELGAUM

The tribunal held that the appellants transferred the right of possession and effective control of railway wagons to Indian Railways, constituting a ... Nature of transaction - service or not - lease transaction - appellants have transferred the right of possession and effective control of the wagons leased out by them to the South Western Railways - appellants have also discharged applicable VAT / Sales Tax on such transaction - deemed sale or not - HELD THAT:- The wagons are purchased and provided by the appellants, the effective control of the wagons is with the Indian Railways. From the clauses of the agreement, it shows that the lessor-appellant need not pay for the standard maintenance; Indian Railways will be at liberty to make the necessary modifications/changes on the leased wagons and that Indian Railways are free to deploy the wagons as per their schedule and not necessarily only to the appellants. A combined reading of the same goes to prove that during the leased period, the effective control of the wagons is with the Railways. In the instant case, in terms of the agreement, right of possession and effective control of the wagons is with the Indian Railways and not with the appellants. Moreover, the transaction entered into by the appellants with the Indian Railways constitutes a deemed sale in terms of Clause 29(A) of Article 366 of the Constitution of India as the appellants have demonstrated that they have paid appropriate VAT along with penalties to the Karnataka State VAT Department. It is found from the records that the Government of India, Ministry of Railways have clarified vide letter dated 11.6.2014 that this is a case of deemed sales tax under Article 366 (29A) of Constitution of India; deemed sales shall attract provisions of VAT/CST Act, as applicable in that state and that there is no service tax payable on this in leased case. Though, it can be argued that the railways are no authority to clarify the matters in respect of excisability of certain service to the service tax or sales tax for that matter, it is understandable that such a clarification will not be issued by a Ministry in the Government without having due legal consultation. It is on record that the appellants have paid the relevant VAT for the impugned transaction along with penalty though in a belated manner, the agreement entered by the appellant with the Railways cannot be deemed to be a not sale by any standard. As the VAT stands paid in view of the provision of Section 65B(44) of the Finance Act, 1944, the transaction of the appellants constitutes a deemed sale and as such, the supply of wagons by the appellants in the impugned case will automatically go out of taxable service. In the impugned case, the appellants have transferred the right of possession and effective control of the wagons leased out by them to the South Western Railways. The appellants have also discharged applicable VAT / Sales Tax on such transaction, therefore, the activity undertaken by the appellants does not constitute a taxable service of “Supply of Tangible Goods”. Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the lease of railway wagons falls under the category of 'Supply of Tangible Goods' as per Section 65(105)(zzzzj) of the Finance Act, 1994.2. Whether the appellants are liable to pay service tax on the lease of railway wagons.3. Whether the appellants are eligible for CENVAT credit if held liable for service tax.4. Whether the extended period for demand and penalties is applicable due to alleged suppression of facts by the appellants.Issue-Wise Detailed Analysis:1. Supply of Tangible Goods:The appellants leased railway wagons to South Western Railway under agreements dated 23.2.2007 and 8.3.2007. The Central Excise department demanded service tax on the lease/rental charges under the category 'Supply of Tangible Goods' as per Section 65(105)(zzzzj) of the Finance Act, 1994. The department argued that the appellant-lessor retained ownership, bore repair costs, had the right to terminate the agreement, insured the wagons, and did not pay VAT/sales tax on the lease transaction.2. Liability to Pay Service Tax:The appellants contended that the lease agreements transferred the right to use and effective control of the wagons to Indian Railways, making it a deemed sale under Article 366(29A) of the Constitution. They cited a Government of India (Railways Board) letter dated 11.6.2014, which clarified that effective control of wagons under the 'Own Your Wagon Scheme' (OYWS) lies with Indian Railways. The appellants also paid VAT on the lease rentals for the period 2007-2008 to September 2016, as confirmed by the Karnataka VAT Department.3. Eligibility for CENVAT Credit:The appellants argued that if they were liable to pay service tax, they should be eligible for CENVAT credit of Rs. 9,94,68,503/- and Cess of Rs. 19,89,370/- as per the invoices issued by the manufacturers. They also claimed that no extended period could be alleged, and penalties could not be imposed due to the absence of suppression on their part.4. Extended Period and Penalties:The appellants maintained that there was no suppression of facts, and thus, the extended period for demand and penalties should not apply. They relied on various case laws and CBEC Circular F.No.334/1/2008-TRU dated 29.2.2008, which clarified that the transfer of the right to use any goods is subject to Sales Tax/VAT as deemed sale of goods.Judgment Analysis:Lease Agreement Clauses:The tribunal analyzed the lease agreement clauses, which indicated that effective control of the wagons was with Indian Railways. The agreement allowed Indian Railways to use the wagons in the general pool, make necessary modifications, and deploy the wagons as per their schedule.Legal Provisions and Case Laws:The tribunal referred to Section 65(105)(zzzzj) and Section 65B(44) of the Finance Act, 1994, which define taxable service and service, respectively. The tribunal concluded that the right of possession and effective control of the wagons was with Indian Railways, making the transaction a deemed sale under Article 366(29A) of the Constitution. The tribunal cited several case laws, including Bharat Sanchar Nigam Ltd., Great Eastern Shipping Company Ltd., and G.S. Lamba & Sons, which supported the appellants' position.VAT Payment Evidence:The tribunal noted that the appellants had paid VAT along with penalties for the impugned transaction, as evidenced by the proceedings before the Advanced Ruling Authority of Karnataka VAT and the Deputy Commissioner of Commercial Taxes, Davangere.Conclusion:The tribunal held that the appellants had transferred the right of possession and effective control of the wagons to Indian Railways and had discharged applicable VAT/Sales Tax. Therefore, the activity did not constitute a taxable service of 'Supply of Tangible Goods.' The tribunal set aside all the impugned orders and allowed the appeals with consequential relief, if any, as per law.Order Pronounced:(Order pronounced in the Open Court on 18/02/2022.)