2024 (3) TMI 1341 - AT - Service Tax

Private wagon supply to Railways under investment schemes constitutes deemed sale, not service - no service tax applicable

CESTAT Mumbai held that supply of wagons by private players to Railways under Own Your Wagon Scheme/Wagon Investment Scheme/Liberalized Wagon Investment ... Levy of service tax - Supply of Tangible Goods as defined by Section 65 (105)(zzzzj) of the Finance Act, 1994 or not - supply of wagons by private players to Railways in terms of “Own Your Wagon Scheme” or “Wagon Investment Scheme” or “Liberalized Wagon Investment Scheme” - period of dispute in the present appeal is from 2008-09 to December 2011 - HELD THAT:- Under the Sales Tax Act, there is transfer of possession and effective control in goods for levy of sales tax, while there is no such transfer of possession and effective control under the Finance Act for levy of service tax - In the present case, the transaction between appellant and the Railways would qualify as transfer of right to use the wagons with the Railways having possession and effective control over the wagons leased by the appellant. It would, therefore, result in a deemed sale having taken place. In GS. LAMBA AND SONS VERSUS STATE OF ANDHRA PRADESH [2011 (1) TMI 1196 - ANDHRA PRADESH HIGH COURT], the issue that arose before the Andhra Pradesh High Court was whether the contract with M/s. Grasim Industries Limited for transporting the Ready Mix Concrete was for transfer of the right to use Transit Mixers and it was held that 'The entire use in the property in goods is to be exclusively utilised for a period of 42 months by Grasim. The existence of goods is identified and the Transit Mixers operate and are used for the business of Grasim. Therefore, conclusively it leads to the only conclusion that the petitioners had transferred the right to use goods to Grasim.' A conjoint reading of all the relevant terms of the lease Agreement dated 12.06.2009 leaves no manner of doubt that the wagons have been leased out by the appellant to the Railways with transfer of right of possession and effective control and the essential requirements of a deemed sale having taken place stand satisfied. On an analysis of the terms of the Agreement between MSPL and the Railways, the Tribunal recorded a categorical finding that the right of possession and effective control of the wagons was with the Railways and not with MSPL. The Tribunal also recorded a categorical finding that the transaction entered into between MSPL and the Railways constituted a deemed sale under article 366(29A) of the Constitution and MSPL also paid VAT to the State Government. The Tribunal also noticed that the Ministry of Railways had also clarified in the letter dated 11.06.2014 that this would be a deemed sale which would attract VAT and no service tax would be payable. The lease of wagons by the appellant to the Railways in terms of the Agreement dated 12.06.2009 transfers the right of possession and effective control of the wagons to the Railways and, therefore, cannot be subjected to levy of service tax under section 65(105)(zzzzj) of the Finance Act. Issues Involved:1. Taxability of the supply of wagons under 'Own Your Wagon Scheme' as a service under Section 65(105)(zzzzj) of the Finance Act, 1994.2. Determination of whether the lease agreement constitutes a deemed sale under Article 366(29A) of the Constitution of India.3. Applicability of VAT versus Service Tax on the lease transaction.4. Interpretation of the lease agreement terms to ascertain the transfer of possession and effective control.Issue-wise Detailed Analysis:1. Taxability of the Supply of Wagons:The primary issue was whether the supply of wagons by private players to the Railways under the 'Own Your Wagon Scheme' or similar schemes constitutes a taxable service under Section 65(105)(zzzzj) of the Finance Act, 1994. This section defines taxable service as the supply of tangible goods for use without transferring the right of possession and effective control.2. Deemed Sale under Article 366(29A):The appellant argued that the lease agreement amounted to a deemed sale under Article 366(29A) of the Constitution, which includes the transfer of the right to use any goods for any purpose for cash, deferred payment, or other valuable consideration. The appellant had paid VAT on this transaction, treating it as a deemed sale.3. Applicability of VAT vs. Service Tax:The Commissioner rejected the appellant's claim that VAT payment precluded service tax liability, citing that the appellant had not paid the full VAT amount. The Commissioner referred to the Supreme Court decision in Idea Mobile Communication Ltd. to support the view that overlapping tax measures do not preclude service tax liability.4. Interpretation of Lease Agreement Terms:The lease agreement between the appellant and the Railways was scrutinized to determine whether it transferred the right of possession and effective control of the wagons to the Railways. The agreement specified lease charges, guaranteed clearance of traffic, maintenance responsibilities, and the ability of the Railways to make modifications to the wagons.Detailed Analysis:Taxability of the Supply of Wagons:The Tribunal examined whether the lease of wagons by the appellant to the Railways constituted a supply of tangible goods service under Section 65(105)(zzzzj) of the Finance Act. The Tribunal noted that this section applies if the supply is without transferring the right of possession and effective control. The Tribunal referenced the lease agreement terms to determine the nature of the transaction.Deemed Sale under Article 366(29A):The Tribunal considered whether the transaction was a deemed sale under Article 366(29A). The Constitution empowers the State to levy Sales Tax/VAT on transactions involving the transfer of the right to use goods. The Tribunal referenced the Supreme Court's interpretation in Bharat Sanchar Nigam Ltd. and other cases to identify the attributes of such transactions.Applicability of VAT vs. Service Tax:The Tribunal noted that the appellant had paid VAT on the transaction, treating it as a deemed sale. The Tribunal referenced Circulars from the department clarifying that payment of VAT indicates a transaction treated as a sale of goods, precluding the levy of service tax. The Tribunal also referenced the Supreme Court's decision in Quick Heal Technologies Limited, which outlined essential requirements for the transfer of the right to use goods.Interpretation of Lease Agreement Terms:The Tribunal analyzed the lease agreement terms, including lease charges, guaranteed clearance of traffic, maintenance responsibilities, and the ability of the Railways to make modifications to the wagons. The Tribunal concluded that the Railways had possession and effective control over the wagons during the lease period. The Tribunal referenced similar agreements in previous cases, including MSPL Ltd., where the Supreme Court upheld the Tribunal's view that such transactions constituted deemed sales.Conclusion:The Tribunal concluded that the lease of wagons by the appellant to the Railways transferred the right of possession and effective control to the Railways. Therefore, the transaction was a deemed sale under Article 366(29A) of the Constitution and was not subject to service tax under Section 65(105)(zzzzj) of the Finance Act. The Tribunal answered the reference accordingly and directed the Division Bench to hear the appeal on merits.