AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (3) TMI 1341
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.... "Liberalized Wagon Investment Scheme", is a taxable service classified under the category of Supply of Tangible Goods as defined by Section 65 (105)(zzzzj) of the Finance Act, 1994." 2. M/s. Rashtriya Chemicals & Fertilizers Ltd., Thal Unit [the appellant] is a Public Sector Undertaking engaged in the manufacture of various fertilizers as well as chemicals in bulk quantity. To facilitate the transportation of such bulk quantity of final products as well as the required raw materials, the appellant laid down railway lines from its factory to the main line of Indian Railways. 3. The Ministry of Railways introduced a 'Own Your Wagon Scheme' under which an appeal was made to the industry to invest in the procurement of railway wagons in order to increase the availability of wagons for movement of goods. Accordingly, a Lease Agreement for 'Own Your Wagon Scheme' (Category-B) dated 12.06.2009 was entered into between the appellant (the lessor) and the Railways (the lessee) under which the Railways took on lease from the appellant 416 wagons. The Agreement was to remain in force for a period of 20 years and the Railways had to pay to the appellant lease charges on the current cost ....
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....nt received/claimed from Central Railways. The assessee have received lease rent amounting to Rs. 13,04,29,833/- from the Railways during the period 2008-09 to 2011-12 (Upto December, 2011). This activity of the assessee of leasing railway wagons to Railways is liable to Service Tax under the category of "Supply of tangible goods service" under Section 65(105)(zzzzj)." (emphasis supplied) 6. The appellant filed a detailed reply dated 18.06.2012 to the aforesaid show cause notice and denied the allegations made therein. The appellant pointed out that in terms of the Agreement there was a transfer of right to use the wagons in favour of the Railways and the appellant ceased to have any effective control over the wagons. The appellant placed reliance upon the Circular dated 29.02.2008 issued by the department and also upon a decision of the Supreme Court in State of Andhra Pradesh and another vs. Rashtriya Ispat Nigam Ltd. [2013 (31) S.T.R. 513 (S.C.)] and contented that the appellant had not provided supply of tangible goods service to the Railways. The appellant also pointed out that it had paid VAT under the State Act treating the transaction to be a deemed sale. 7. The Co....
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....erence order, the Division Bench has made reference to some documents explaining the Liberalized Wagon Investment Scheme, 2008 as also a Freight Marketing Circular dated 29.10.2019 and concluded: "4.3 The Own Your Wagon Scheme was launched in 1992 to tap the private sector for augmenting wagon supply. Under the scheme, private sector firms could procure wagons either through Indian Railways or directly from approved wagon builders, own them and lease them to the railways. ***** This scheme was revised and recast as the Wagon Investment Scheme in 2005 and the Liberalized Wagon Investment Scheme in 2008. In the documents explaining the scheme of 2008, following has been stated.***** ***** 4.4 From the facts as detailed above no legal right to possession of these wagons have been transferred by the Appellant to the Railways. It will be only after the expiry of tertiary lease period (10 year extension over 20 years of initial period of lease), that the ownership in the wagon will be transferred to Railways. Further as per the details of the scheme maintenance of the wagon etc during the period of lease is responsibility of the Appellants and railway ....
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.... in MSPL Ltd. vs. CCE & C., Belgaum [2023 (69) G.S.T.L. 289 (Tri.-Bang.)] as also to the decision of the Supreme Court in Commissioner of Central Excise and Customs vs. MSPL Ltd. [2023 (69) G.S.T.L. 225 (S.C.)] that has dismissed the appeal filed by the department to the assail the aforesaid order of the Division Bench of the Tribunal in MSPL. Learned counsel also pointed out that the decision of the Tribunal in EIH, on which reliance had been placed in the reference order, would not come to the aid of the department for the reason that from the nature of the transaction in the matter it is clear that effective control and possession of the aircraft remained with the appellant, whereas in the present case the possession and effective control of the wagons is of the Railways. Learned counsel also placed reliance upon a certificate dated 08.11.2015 issued by the Chartered Accountant certifying that after verification of the VAT records of the appellant, it is clear that VAT was paid by the appellant on accrual basis on the invoice raised by the appellant on Railways for lease rent. 14. Shri Pramod Kumar Maurya, learned authorized representative for the department, however, submitt....
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....ms of the Agreement dated 12.06.2009 entered into between the appellant (lessor) and the Railways (lessee) to determine whether there was a supply of tangible goods with or without transfer of right of possession and effective control. The relevant portions of the Agreement are reproduced below: "1.0 GENERAL AGREEMENT: Whereas the lessee desires to take on lease from Lessor and Lessor desires to lease to Lessee 416 (number) of BCN A(type) wagons procured through either the Ministry of Railways or builders approved by them subject to the terms and conditions hereafter appearing. Now, therefore, in consideration of the mutual premises, covenants and agreements set forth herein, the parties hereby agree as follows: ***** 2.4 CURRENT COST: The actual procurement price paid by the party is Rs. 12.91 lakhs per wagon as per Railway Board's letter no. 96/TC(FM)/4/5 dated 10/05/2001 and 18/05/2001. Central Excise Duty (net of MODVAT) and any other statutory tax/duty paid by the Lessor will also form part of the cost of the wagon for the purpose of lease charge. ***** 3. VALIDITY OF AGREEMENT OF LEASE: This agre....
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....cable to the wagons under private ownership also. In case the wagons are detained on Lessor's account for loading/unloading for more than 50% of the normal prescribed free time over a month the guaranteed monthly supply of wagons will be reduced proportionately. (Example: if the guaranteed clearance for a plant is 30,000 tonnes in a month and loading/unloading time in excess of 50% of the normal prescribed free time in a month is 120 hrs then guaranteed clearance for the next month become 25000 tonnes i.e. reduction by 5 days) 10.0 MAINTENANCE: 10.1 No maintenance charges will be levied for maintenance undertaken by IR as per standard norms. 10.2 MODIFICATION 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 modifications charged to the revenue expenditure of Railways which are part of the revenue maintenance will be carried out at the Lessee's cost." (emphasi....
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....ges undertaken by the Railways have not to be paid by the appellant, but if the Railways carry out any modifications, other than minor modifications, on the leased wagons, charges would be paid by the appellant. However, this additional cost will also qualify for the lease charges for the remaining period of the contract. Any minor modification of the wagons shall be carried out by the Railways at its own cost. 23. The reference order, as noticed above, makes reference to some documents explaining the Liberalized Wagon Investment Scheme, 2008 and Freight Marketing Circular of 2019 for the purpose of determining whether the supply of wagons to Railways would be a supply of tangible goods service but neither the show cause notice nor the impugned order make reference to the said documents. In fact, the show cause notice and the order passed by the Commissioner have placed reliance only on the relevant clauses of the Agreement dated 12.06.2009, which alone was required to be examined for determining whether the lease of the wagons by the appellant to the Railways would be a taxable service under section 65(105)(zzzzj) of the Finance Act. It is this Agreement that was referred to in....
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....VAT Acts or Central Sales Tax Act. The said phrase was interpreted by the Supreme Court in Bharat Sanchar Nigam Ltd. vs. Union of India [2006 (2) STR 161 (SC)] , wherein the Supreme Court laid down five attributes for a transaction to constitute a 'transfer of right to use goods'. In this connection paragraph 91 of the judgment of the Supreme Court is reproduced below: "91. To constitute a transaction for the transfer of the right to use the good, the transaction must have the following attributes: a. There must be goods available for delivery; b. There must be consensus ad idem as to the identity of the goods; c. The transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permission or licenses required therefore should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion of the transferor this is the necessary concomitant of the plain language of the statute- - viz. a 'transfer of the right to use' and not merely a license to use the goods; e. Having transferred the right to use the goods during....
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....e used as per the delivery schedule given by Grasim. The counsel also does not dispute that the agreement between the parties speaks of a dedicated fleet of vehicles to be made available on 24/7 basis duly painted in a particular style and colour, and staff being under the instructions of Grasim alone. It is, however, submitted that the parties agreed for five dedicated vehicles as RMC needs to be transported immediately after it is manufactured in the batching plant, and the manufacturer cannot identify and negotiate with the transporter for carrying the products every time an order is placed. Therefore, such a clause was included in the agreement to ensure there is no delay in delivering the product to the customers. He also submits that making available the vehicles through out the day or painting them with brand name of Grasim is required keeping in view the possible hurdles in logistics, and to ensure customer satisfaction of getting the required branded RMC. According to him, these clauses by themselves do not warrant an inference of transfer of the right to use Transit Mixers. ***** 42. In addition to the above clauses, we have thoroughly perused and analys....
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....ot in any manner derogate from the fact that the transaction constitutes transfer of the right to use the tangible goods, including possession and effective control of the tankers. This is so since there are several other clauses in the agreements between the parties (referred in para 10 supra), which disclose that the personnel on board the tankers function and operate strictly in terms of detailed instructions, guidelines and directives issued or to be issued by the assessee in terms of the authority of the assessee to do so, under the agreements. The personnel and crew must also be replaced by the owners on valid compliant about their misbehaviour lodged by the assessee. On a true and fair analysis of the several clauses of the charter - agreements, considered as a whole, mere employment of the personnel and crew by owners does not derogate from the reality of transfer of possession to and effective control by the assessee over the tankers, for the use of these tangible goods." (emphasis supplied) 34. In Gimmco Limited vs. Commissioner of Central Excise and Service Tax, Nagpur [2017 (48) STR 476 (Tri.- Mum.)] , the Tribunal observed as follows: "5.2 Revenue's cont....
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....evant provisions of the contract agreement between the parties indicate the clear dominion and control of ONGC over the crane during the entire period of operation of the contract once a crane is placed at the disposal of the ONGC under the contract. The crane is to be deployed at worksites as per the discretion of the ONGC and though the normal period of deployment is 10 hours in a day, such deployment at the discretion of the ONGC may be for any period beyond the normally contemplated 10 hours. The deployment of the crane in oil field operations as well as other hazardous situations is at the sole discretion of the ONGC. Though the cranes are operated by the crew provided by the contractor such crew while operating a crane is under the effective control of the ONGC and its authorities. Therefore, under the contract though the normal operational time is 10 hours in a day, the ONGC is entitled to deploy the cranes, if required, to the entire period of 24 hours to perform duties the kind of which and the locations whereof is to be decided by the ONGC. The mere fact that after the operation of the crane is over on any given day the crane may come back to the owner/contractor will har....
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....uld be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor - this is the necessary concomitant of the plain language of the statute viz. a "transfer of the right to use" and not merely a licence to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others." (emphasis supplied) 37. The Supreme Court thereafter also examined the essential requirements for transfer of the right to use the goods in the following manner: "52. From the judicial decisions, the settled essential requirement of a transaction for the transfer of the right to use the goods are : (i) it is not the transfer of the property in goods, but it is the right to use the property in goods; (ii) Article 366(29A)(d) read with the latter part of the clause (29A) which uses the words, "and such transfer, delivery or supply"... would indicate that the tax is not on the delivery of the goods used, but on the transfer of the right to use goods regardless of when or w....
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.... 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. 40. What also needs to be noticed is that payment of VAT is also a factor which needs to be taken into consideration while determining whether the transaction is that of deemed sale. The clarification issued by the department in the Circular dated 29.02.2008 supports this view. The relevant portion of the Circular is reproduced below: "4.4. Supply of Tangible Goods for use: 4.4.1 Transfer of the right to use any goods is leviable to sales tax/ VAT as deemed sale of goods (Article 366 (29A)(d) of the Constitution of India). Transfer of right to use involves transfer of both possession and control of the goods. 4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, companion equipment, cranes etc. offshore construction vessels & barges, geotechnical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transac....
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....uded in the taxable service under section 65(105)(zzzx) of the Finance Act which provides for levy of service tax on telecommunication service or whether it is taxable as sale of goods under the Sales Tax Act. The Supreme Court held that service tax was payable since SIM card has no intrinsic sale value and it is supplied to the customers for providing mobile service to them. In fact, the Supreme Court also noticed that after remand of the matter, the Sales Tax Authority themselves dropped the proceedings after conceding the position that SIM card has no intrinsic sale value and it was supplied to the customers for providing telephone service. This decision, therefore, would not help the department. 43. In Ultratech Cement, which has also been relied upon by the learned authorized representative appearing for the department, the issue that had arisen before the Chhattisgarh High Court was whether the assessment of VAT by the State Authority was bad in law for the reason that the Agreement was executed at a place outside the territory of the State of Chhattisgarh and the wagons which were purchased by the petitioner company were also not delivered or stationed within the territor....
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....nd up to the next 10 years. At the end of 20 years period, the conditions of these wagons will be examined by the Indian Railways so as to find out whether they are operationally and mechanically fit for further retention in service. If the wagons are found to have outlived their economic life and are not found mechanically and operationally fit, the owner will be entitled to dispose of the same as scrap either directly or through the railways, if the owner so likes. If the wagons are found mechanically fit for service after the expiry of the 20 years period the lease may be continued on mutually agreed terms. 2.0 Validity of Agreement of Lease This agreement shall remain in force for a period of 20 years from the date of commencement. 5.0 Lease Charges 5.1 Lease charges will be paid by the Indian Railways to the leasing companies in advance on quarterly basis. The calculation of the lease charges will be based on the cost of procurement which will include the transfer price of free supply items provided by the Railways. Central Excise (Net of MODVAT) and any other statutory tax/duty paid by the Lessor will also form a part of the cost of wagons for the p....
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....rappellant need not pay for the standard maintenance; Indian Railways will be at liberty to make the necessary modifications/changes on the leased wagons and that Indian Railways are free to deploy the wagons as per their schedule and not necessarily only to the appellants. A combined reading of the same goes to prove that during the leased period, the effective control of the wagons is with the Railways. 3.1 ***** 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 forth coming 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....
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....rs; no maintenance charges were to be levied for the maintenance undertaken by the Railways; the Railways were, however, at liberty to make necessary modifications on the leased wagons at the cost of MSPL, but this additional cost would also qualify for lease charges for the remaining period of the Agreement; and minor modifications carried out by the Railways would be charged to the revenue expenditure of the Railways and would be carried out at the cost of the Railways. 46. On an analysis of the aforesaid 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. 47. The Civil Appeal filed by the department be....