TaxTMI 
TaxTMI 
2022 (2) TMI 901
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....ST/20679/2019 OIA No BEL-EXCUS-MSC- 400/2018-19 dated 5.4.2019 Briefly stated the facts of the case are that the appellants are engaged in mining and sale/export of iron ore and are registered with service tax department. The appellants have availed 'own your wagon scheme' introduced by Indian Railways by purchasing and leasing out six rakes of railway wagons under agreements dated 23.2007 and 8.3.2007 to M/s. South Western Railway, Hubli; the dry leaves of wagons was initially for a primary period of 10 years extendable to secondary period of up to 20 years. Central Excise department proposed demand of service tax on the lease/rental charges received on lease of wagons as above under the category 'Supply of Tangible Goods' as per Section 65(105)(zzzzj) of Finance Act, 1994. The department alleged that (i) the appellant-lessor is the absolute owner of the wagon; (ii) the cost of repairs and modification of the wagons have to be borne by the appellant-lessor; (iii) the lessor has got the right to terminate the agreement under certain circumstances; (iv) the appellants have insured the wagons; and that (v) the appellants have not paid VAT/sales tax on the transaction of the lea....
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.... (Tri-Del) 2.2 Learned counsel for the appellant submits that, in case, it is held that they are liable to pay service tax on the lease of railway wagons to South Western Railway, it is to be held that they are 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 as mentioned in appeal No.ST/311/2011. He also submits that as there was no suppression on the part of the appellants, no extended period can be alleged and penalties cannot be imposed on them. 2.3 Learned AR for the Revenue reiterates the findings of the various Orders-in-Original and Order-in-Appeal. 3. Heard both sides and perused the records of the case. In order to appreciate the true nature of the agreement between the appellants and the railways authorities, it would be beneficial to go through the relevant clauses of the agreement. QUOTE 1.0 General Agreement: Whereas the Lessee desires to take on lease from Lessor and Lessor desires to lease to Lessee 60 (number) of BOXNHS (type) wagons procured through either the Ministry of Railways or builders approved by them subject to the terms and conditions herein aft....
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....r. 7.0 Guaranteed Clearance of Traffic: The Railway will provide guaranteed clearance of 11 (Eleven) rakes to run between VYS to SVM of IRON ORE (commodity) per month for a period of 20 years from the commencement date. The scheduling of demand and supply of wagons will be decided between the Lessor and Lessee. 10.0 Maintenance: 10.1 No maintenance charges will be levied for maintenance undertaken by IR as per standard norms. 10.2 Modifications of Wagons: The Lessee will be at liberty to make the necessary modifications/changes on the leased wagons which they would carry out on their own wagons of similar design. The changes would be made at the Lessor's cost. This additional cost will also qualify for lease charges for the remaining period of contract. However, minor modification charged to the Revenue expenditure of Railways which are part of the Revenue maintenance will be carried out at the Lessee's cost. 10.3 If the Lessor requires/owns a private siding, he will be governed by the relevant siding agreement in respect of the infrastructure facilities including maintenance of the wagons within the siding premises. ....
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.... being in force." The above provisions indicate that to be a taxable service, the supply of tangible goods, etc., for use should be without transferring the right of possession and effective control and such transfer of goods should not be a sale or deemed sale. Comparing the provisions with the factual matrix of the case, we find that in the instant case, in terms of the agreement which we discuss in the forthcoming paras, 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. We find 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 leas....
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.... and Rs. 59,50,418/- respectively totalling to Rs. 13,19,12,536/-. We agree with your demand for the year 2007-08 Rs. 48,46,724/- tax. The matter has already been dealt with by Commercial Tax Officer (Enforcement-3), Bellari. We have already requested Hon'ble Chief Minister, Government of Karnataka, to waive off penalty and interest vide letter No.MSPL/2018-19 dated 25.09.2018. A copy of letter enclosed for your ready reference. ....." 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. 3.2 We find that this issue of "Supply of Tangible Goods" has come before various Courts and Tribunals for scrutiny. We find that Hon'ble Supreme Court in the Bharat Sanchar Nigam Ltd. vs. UOI (s) ha....
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....opinion there is not even an iota of doubt that under the charter agreement coupled with the instructions to tenderers, general conditions and special conditions for the contract as specified in the tender documents and charter-party clauses, there is a transfer of right to use the vessel for the purposes specified in the agreement. 34. To constitute a transaction for the transfer of right to use of goods, essential is, goods must be available for delivery. In the instant case, the vessel was available for delivery and in fact, had been delivered. There is no dispute as to the vessel and the charterer has a legal right to use the goods, and the permission/licence has been made available to the charterer to the exclusion of the contractor. Thus, there is complete transfer of the right to use. It cannot be said that the agreement and the conditions subject to which it has been made, is not a transfer of right to use the goods, during the period of six months, the contractor has no right to give the vessel for use to anyone else. Thus in view of the provisions inserted in Article 366(29A)(d), Section 5C, and definition of 'sale' in Section 2 of the KST Act, there is no room f....