Chargeability of service tax on services not actually rendered

[BipadBhanjan dixit]

A company has owned a Railway Wagon under a 'Wagon Investment Scheme' (in short WIS) proposed by the Indian Railways and handover to Indian Railway which runs in a general pool of wagons for 10 years as per agreement made between company and Railways. As per the agreement, the company will get the monthly guaranteed wagons for transporting of goods with 10 % freight rebate on use from Railway. No carry forward for non-use of guaranteed wagons to next month if it is a faults of the assessee,

In order to avoid the lapses of guarantee in a month, the company accepts the offer from other companies who are in need of wagons for transportation of their goods. The freight is paid by the company who transport of goods actually with 10 % freight rebate, For endorsing such guaranteed entitlement, the owner of wagons receive the consideration form the ultimate user both for benefiting 10% freight rebate and for shifting the right of entitlement on behalf of ultimate transporter.

Query-1 In this case whether the service tax is chargeable on consideration received?

Query-2 Where the company has made an agreement with the third party that irrespective of use or non-use of wagons, the transferee will have to pay the fixed agreed sum of money to the owner of wagons. In that case whether the service tax is applicable for a sum received from the transferee without actually using the wagons offered by the owner/investor?

If so. than under which catagory such tax is chargeable? ( Supply of tangible service OR Business Auxiliary service)?

Please guide me for overcoming this issue.

Thanks.

Regards,

B.DIXIT.

[bhart b sharma]

the facts and circumstances of your case need detailed deliberation with respect to the contents of contract/agreement entered between the parties. furthermore, chargeability of service tax is governed by a number of factors stipulated in various provisions of Finance ACt, 1994. with the introduction of negative list of services, the scenario with respect to classification of services has drastically changed.

under earlier tax regime, 'tangible' is not pertinent word as 'tangible' meant something concrete; material assets; discernible by the touch; real that can be valued monetarily. tangible goods are made available to the service recipient for use. ..

AI Summary

Service tax on deemed provision of wagon entitlements may apply when consideration is paid despite non-use of the asset. Chargeability of service tax arises where a wagon-owner receives consideration for shifting or endorsing guaranteed wagon entitlements, even without actual use. Determination hinges on contractual terms and whether the receipt constitutes a deemed provision of service or a supply of a tangible service, or instead falls within non-taxable categories. Classification depends on whether the owner is merely transferring a contractual right or providing an ongoing service such as facilitation, which may be taxable as business auxiliary services under the negative-list framework.