TaxTMI 
TaxTMI 
2024 (8) TMI 717
X X X X Extracts X X X X
X X X X Extracts X X X X
....period of limitation. 2. The facts of the case are that M/s. Rungta Sons Private Limited, AT/PO: Barbil, District: Keonjhar, Odisha (the 'Appellant') are engaged in mining and sale of Iron Ore / Iron Ore Fines. The appellant entered into an Agreement dated 21.02.2007 with the Indian Railways for investment in 6 numbers of 'Railway Rakes' of BOXN Wagons under the Wagon Investment Scheme (hereinafter referred to as 'WIS'). 3. The contracts executed by the appellant contained two types of activities: (i) The first contract in the Agreement dated 21- 02-2007 is between the Indian Railways and the appellant for supply of 6 nos. of Railway Rakes under "Wagon Investment Scheme". For the investment made, the appellant is entitled to get the following considerations: (a) 10% freight rebate on 6 Guaranteed Rakes for use in transportation of goods by the Appellant and (b) two Bonus Rakes without freight rebate for transportation of goods by the Appellant. (ii) The second contract in the Agreement is between the Appellant and their private clients whom the Appellant allow to use the benefit of the 6 Guaranteed Rakes and 2 Bonus Rakes. In this c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvice, by the Revenue. 4.2. Accordingly, a Show Cause Notice dated 23.07.2012 was issued to the appellant demanding Service Tax of Rs.1,32,58,527/- (including cess) on the 'Wagon Facilitation Charges' of Rs.11,18,52,966/- received during the period from 2008-09 to 2009-10, under the category of 'supply of tangible goods service'. 5. The said Notice was adjudicated by the Ld. Commissioner vide the impugned order wherein the demand of Service Tax raised in the Notice has been confirmed along with interest. He also imposed equal amount of tax as penalty. Aggrieved against the impugned order, the appellant has filed this appeal. 6. The appellant submits that the rakes / wagons supplied by them to the Indian Railways were under the effective control and possession of the Indian Railways for a period of ten years; the Indian Railways were not issuing the same rakes to the appellant. The appellant submits that they have been given six nos. of guaranteed rakes for use in transportation of goods with freight rebate of 10%; two nos. of bonus rakes without freight rebate were also given to them. The appellant submits that the wagons supplied by them to Indian Railways would f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed. In support of this contention, the Appellant relies on the decision in the case of Smt. Tarulata Shyam Vs. CIT reported in (1977) 3 SCC 305 [Para 35]. (viii) In the case of CST Vs. Adani Gas Ltd. [2020] 81 GSTR-1 (SC)] it is held by the Hon'ble Supreme Court that for attracting the levy under Section 65(105)(zzzzj)[Para 20, 28] a. The effective control over the goods must continue with the service provider and; b. the tangible goods is the intrinsic element of service which must be provided to the service recipient for use. (ix) The Ld. Addl. Commissioner while dealing with identical fact situation in respect of their group companies in the case of M/s Feegrade & Co. P. Ltd. and Others vide adjudication Order dated 28-12-2012 bearing no. CCE/BBSR- II/S.Tax/No.25/Additional Commissioner/2012, following Circular No. 334/1/2008-TRU dated 29-02-2008, constitutional provisions under Article 366(29A)(d) read with Entry 54 of Union list, Section 65(105)(zzzzj) of the Act, judgment of the Hon'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ices". In the case of Sundaram Finance Ltd. Vs. Asst. Commissioner of Income Tax reported in (2012) 10 SCC 430, it was held by the Hon'ble Supreme Court that the taxing authorities are bound to determine the legal character of the transaction and the substance over form must be considered in determining the legal character of the transaction. Accordingly, it is submitted that taxing the amount of freight rebate/premium under the category of "supply of tangible goods services" as defined under Section 65(105)(zzzzj) is wholly illegal and without arbitrary of law. (xvii) Under the Central Excise Tariff Act, 1975 and also under the Customs Tariff Act, 1985, "Railway Wagons/rakes" are not treated as "machinery, equipment and "appliances" falling under Chapter 84/85 but are treated separately under Chapter 86. Hence, for this reason also, the supply of railway wagons/rakes cannot be classified under Section 65(105)(zzzzj). (xviii) The entire demand is barred by normal period of limitation; imposition of penalty is unwarranted in the facts and circumstances of the case. The dispute in the instant case relates to the period from 2008-09 to 2009-10 whereas the impugne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly, the appellant prayed for setting aside the demands confirmed against them in the impugned order. 7. The Ld. Departmental Representative appearing for the Revenue submits that the appellant has invested in the WIS and they were getting six nos. of rakes, with 10% freight rebate, and two nos. of bonus rakes, without rebate; the ownership of these rakes remained with the appellant for ten years and it is transferred to the Indian Railways after the period of ten years. Thus, it is argued that for the ten-year period when the ownership remains with the appellant, they had effective control over the rakes. Accordingly, he submits that the appellant has rendered 'Supply of Tangible Goods Service' liable for service tax and the impugned order has rightly confirmed the demand under the said category. 7.1. Regarding the decision of the Tribunal in the case of M/s. Rashtriya Chemicals & Fertilisers Ltd. (supra) cited by the appellant, he submits that the facts and circumstances of that case are distinguishable from that of the present one inasmuch as in the said case, the wagons were leased to the Indian Railways and the assessee was also receiving leasing charges directly ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances." 9.1. Thus, we observe that the basic requirement to consider the activity of supply of wagons to Railways, under the category of "supply of tangible goods service" is the effective control and possession of those rakes should be with the appellant. To examine whether the appellant has effective control and possession of the wagons after supplying the same to Indian Railways, it is required to examine the main terms and conditions of the Agreement executed by the appellant. Some of the terms and conditions e to the issue on hand as provided in the Agreement dated 21.02.2007, are summarized herein below: - (i) the investor would purchase wagon from authorized vendors of railways [Clause 1 & Clause 2.3], (ii) the investor would supply the Wagons to Indian Railways for a fixed term generally of 10 years [Clause 2.7], (iii) After the expiry of 10 years, the "ownership" in the railway wagon/rakes would stand transferred to the In....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... observe that when the appellant allowed the clients to use the rakes, they have no say in the allotment of the rakes. Railways can allot any rakes to the clients. 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.. 9.3. We observe that while confirming the demand of service tax under the category of 'Supply of tangible Goods Service' in the impugned order, the Ld. adjudicating authority has given his findings as under: "4.8 I find, the scrutiny of P&L Accounts revealed that 'Wagon Facilitation Charges' appearing in the P & L account were collected by the Noticee by raising the debit notes on the customers. Examination of debit notes shows that this charge has two components viz. Freight Rebate' and 'Premium'. It appears that when the Noticee was not in need of any rakes, they authorized their customers to use them for a consideration which comprised of freight rebate This rebate represents amounts which would have otherwise claimed by them from the Railways, if they used the rakes themselves and sometimes a premium. Thus they were abl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e sake of ready reference, the provisions of the said Clauses of the Agreement are reproduced below: "(2.5 FREIGHT REBATE) The Railway Administration shall give freight rebate @10% on the normal tariff rates to the investor as may be notified by the Central Government from time to time. . . . (5.0 BENEFITS ADMISSIBLE TO INVESTOR) (5.1) For investment made in every BG rake with maintenance spares, investors will be assured of supply of a guaranteed number of rakes every month as follows: (5.2 Category BOXN-HS Wagons) Freight rebate of 10% shall be granted for 10 years and guaranteed supply of wagons at the rate of 6 rakes per month. (5.3) The guaranteed supply under wagon Investment Scheme(WIS) will be in addition to normal supply of rakes to such investors (supply during the previous financial year shall be reckoned as normal supply) (5.4) In addition to the above, a guaranteed supply of two bonus rakes will be made without freight concession to those opting for the Engine on Load Scheme(EOL). (5.5) No lease charges shall be payable under WIS." 9.5. From the Clauses referr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....agons, once the wagons have been leased out to the Railways. It Is to be noted that during the lease period, the wagons are in the exclusive use of the Railways for the reason that it is the Railways that determine the movement of the wagons from one place to the other. The Railways have a legal right to use the wagon. The appellant has no control over the movement of the wagons nor can the appellant lease out the wagons to any other department. The appellant is entitled only to a guarantee clearance of 98,618 MT of fertilizer per month for a period of 20 years. Merely because the appellant has a right under the Agreement for clearance of 98,618 MT of fertilizers would not mean that the appellant is in possession or effective control of the wagons. It is not even necessary for the Railways to provide the same wagons leased by the appellant for clearance of fertilizers by the appellant and any wagon can be provided by the Railways to the appellant. Though the appellant may have been the owner of the wagons leased out, but the appellant is required to pay the freight charges at the normal tariff rate. The maintenance charges undertaken by the Railways have not to be paid by the appel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase, the appellant was getting a rebate of 10% in the freight while using the rakes for transportation of goods by Rail. In both the agreements, once the wagons are handed over to Railways, they are in the exclusive use of the Railways for the reason that it is the Railways that determine the movement of the wagons from one place to the other. The Railways have a legal right to use the wagon. The appellant has no control over the movement of the wagons nor can the appellant has the right to allot the same wagons to any other persons. The appellant has been given the right to use the rakes / wagons given by India Railways, which they are free to use the way they want. They can either use the rakes/wagons for themselves or allot to other clients. For the invests made by them they receive the consideration in the form of 10% rebate on the freight which they can avail themselves while transporting the goods of their own or collect from the clients to whom they allot the right to use the rakes. We observe that in both the circumstances there is no service rendered relating to 'supply of tangible goods' as held by the Tribunal in the case of Rashtriya Chemicals & Fertilisers Ltd.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 before the Supreme Court, which is reported in 2023 (69) G.S.T.L. 225 (S.C.) [MSPL Ltd.], was dismissed by the Supreme Court and the decision is reproduced below: "Delay condoned. 2. Having gone through the impugned judgment and order(s) passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), it cannot be said that the Tribunal had committed any error which calls for interference by this Court. In fact, we are in complete agreement with the view taken by the Tribunal. 3. All these Appeals deserve to be dismissed and are, accordingly, dismissed." 48. It is seen that the Supreme Court clearly held that it was in complete agreement with the view taken by the Tribunal. Thus, the views expressed by the Tribunal on the issue can be taken to be the views of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith 10% freight rebate and two rakes without rebate. However, we observe that the mode of payment would not distinguish the nature of service rendered by the appellant to Indian Railways. In both the Agreements the wagons are handed over to Indian Railways and the supplier of wagons has no control over the wagons / rakes once the same are handed over to the Indian Railways. In the present case on hand, we observe that even for their own use, the appellant do not get the same wagons supplied by them. They have to use the wagons allotted to them by the Railways. When the appellant are not in a position to use the wagons / rakes, they allot the same to their clients and get the rebate from the clients by means of raising debit notes. We observe that this is a separate transaction which has nothing to do with the wagons / rakes supplied by the appellant to the Indian Railways. In this case, the appellant has the facility to use the rakes allotted to them by the Indian Railways, which they have given to other clients. The said clients use the rakes allotted to them by the Railways for the purpose of Transportation of Goods By Rail Services. Once the right to use the wagons are transferr....