2024 (8) TMI 717 - AT - Service Tax

Classification of services whether leasing railway rakes constitutes supply of tangible goods service, appeal allowed on merits and limitation

Classification of services dispute examined whether leasing railway rakes to Indian Railways amounted to a supply of tangible goods service; tribunal ... Classification of services - Supply of Tangible Goods Service or not - activity of allowing clients to use the rakes given to them by Railways for transportation of goods - time limitation. HELD THAT:- The appellant has no control over the railway rakes supplied by them to the Indian Railways. Once the rakes are handed over to the Indian Railways, the Indian Railway are free to use the said rakes for any of their clients.The appellant was never getting the same rakes for transportation of goods by Rail for themselves or for their clients. Hence, the effective control and possession of the said rakes was not with the appellant once the rakes / wagons were handed over to the Indian Railways - The services received by the clients from Indian Railways is ‘Transportation of goods by Rail’ service. There was no supply of tangible goods service involved. From the Clauses of the Agreement, it is observed that possession and effective control of the wagons. When the control and possession of the Railway Rakes were with the Indian Railway, question of Supply of Tangible Goods Service by the Appellant for use to their clients does not arise. Further, it is observed that the wagon/rakes were allotted by the Indian Railways to the Appellant under the Agreement from the 'common pool' and it was not the same rakes/wagons supplied by the Appellant to the Indian Railways. Accordingly, the activity under taken by the appellant in the instant case cannot be considered as taxable service under the category of 'supply of tangible goods services'. It is observed that in the case M/S. RASHTRIYA CHEMICALS & FERTILISERS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE SERVICE TAX (LTU), MUMBAI [2024 (3) TMI 1341 - CESTAT MUMBAI], after analysing the agreement, which is almost similar to the agreement in the present case on hand, the Tribunal held that leasing out the wagons to Railways would not fall under the category of taxable service of ' Supply of Tangible goods'. In the present case, the appellant did not have the effective control and possession of the rakes supplied by them to the Indian Railways and hence, they have not rendered any supply of tangible goods service to this effect. Time Limitation - HELD THAT:- The dispute in the instant case relates to the period from 2008-09 to 2009-10 whereas the impugned Show Cause Notice was issued on dated 23-07-2012. The instant proceeding is initiated on the basis of Audit of Books of Accounts and scrutiny of Profit & Loss A/c. [Schedule XV (Other Income)] of the Appellant. No fresh material is brought by the Department to allege any suppression of facts with intention to evade the tax - the entire demand is barred by normal period of limitation of one year and hence the demands confirmed in the impugned order are liable to be set aside on the ground of limitation also. The demands confirmed in the impugned order set aside on merits as well as on limitation - appeal allowed. Issues Involved:1. Classification of the service as 'supply of tangible goods service' under Section 65(105)(zzzzj) of the Finance Act, 1994.2. Effective control and possession of the railway rakes/wagons.3. Consideration received by the appellant as 'Wagon Facilitation Charges.'4. Applicability of the extended period of limitation.5. Imposition of penalties.Issue-wise Detailed Analysis:1. Classification of the service as 'supply of tangible goods service':The appellant contested that the activities undertaken by them do not fall within the definition of 'supply of tangible goods service' as defined under Section 65(105)(zzzzj) of the Finance Act, 1994. They argued that for the provision of 'supply of tangible goods service,' the effective control and possession of the goods must remain with the service provider. In this case, the control and possession of the railway rakes were always with the Indian Railways. The Tribunal agreed with the appellant, stating that the effective control and possession of the wagons were not with the appellant once the rakes/wagons were handed over to the Indian Railways. Therefore, the activity could not be considered as taxable service under the category of 'supply of tangible goods service.'2. Effective control and possession of the railway rakes/wagons:The Tribunal examined the Agreement dated 21.02.2007 and noted that the wagons supplied by the appellant were under the control and possession of the Indian Railways for a period of ten years. The appellant had no role in the deployment of the rakes/wagons, and the same rakes were never supplied back to the appellant. The Tribunal concluded that the effective control and possession of the rakes were with the Indian Railways, not the appellant.3. Consideration received by the appellant as 'Wagon Facilitation Charges':The appellant collected freight rebate and sometimes premium from their clients, which were accounted for under 'Wagon Facilitation Charges.' The Tribunal observed that this amount was not collected towards rendering any service in the nature of 'supply of tangible goods service.' Instead, it was related to the transportation of goods by rail services. The Tribunal held that the consideration received by the appellant could not be classified as consideration for 'supply of tangible goods service.'4. Applicability of the extended period of limitation:The appellant argued that the entire demand was barred by the normal period of limitation and that there was no suppression of facts with the intention to evade tax. The Tribunal noted that the dispute related to the period from 2008-09 to 2009-10, while the Show Cause Notice was issued on 23-07-2012. The proceedings were initiated based on the audit of books of accounts and scrutiny of profit & loss accounts. The Tribunal held that no fresh material was brought by the Department to allege any suppression of facts. Therefore, the entire demand was barred by the normal period of limitation.5. Imposition of penalties:Since the demand itself was not sustainable, the question of demanding any interest and imposing any penalties did not arise. The Tribunal set aside the demands confirmed in the impugned order on merits as well as on limitation and allowed the appeal filed by the appellant.Conclusion:The Tribunal concluded that the appellant did not have effective control and possession of the rakes supplied to the Indian Railways and hence, had not rendered any 'supply of tangible goods service.' The demands confirmed in the impugned order were set aside on merits and on the ground of limitation. Consequently, the appeal filed by the appellant was allowed.