Railway exemption under service tax law extended to a railway siding for public sector use, defeating the tax demand.

The railway exemption in the service tax notification was to be construed strictly, but it could not be artificially limited by reading into it a distinction between public and private railways absent from the Finance Act or the notification. A works contract for construction of a railway siding for use by a public sector undertaking was treated as falling within the exemption because use by such an entity was regarded as public use for that purpose. The demand on the basis that the siding was not for public carriage was therefore not sustainable, and service tax was held not payable.

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Issues: Whether service tax was payable on the works contract service relating to construction of a railway siding for use by a public sector undertaking, and whether the activity was covered by the exemption for railways under the relevant notification.

Analysis: The exemption for railways under the notification had to be construed strictly, but the words used in the exemption could not be artificially narrowed by drawing a distinction between public and private railways when such distinction was not borne out by the Finance Act or the notification. The siding was constructed for use by a public sector undertaking, and use by such an entity fell within the notion of public use for the purpose of the exemption. The demand raised on the footing that the service was not for public carriage therefore could not be sustained.

Conclusion: The service was covered by the exemption and service tax was not payable. The finding was in favour of the assessee.

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