2017 (4) TMI 1176 - AT - Service Tax

Liability to tax - supply of tangible goods - appellants got manufactured 60 Railway Wagons and supplied the same to the Railways - Held that - the appellant supplied wagons in terms of agreement dated March, 1996. The agreement and the supply of wagon were much prior to the tax entry introduced in 2008. The tax entry talks about supply of tangible goods. When such supply has occurred when there was no tax liability, there is no question of service tax payment on the same - the right of position and effective control is with the Railways and as such, the tax entry has no application for the present transaction - appeal allowed - decided in favor of appellant.

Summary

Issues: Liability for service tax under supply of tangible goods; Applicability of tax entry introduced in 2008 to supply of wagons in 1996

The judgment deals with the liability of the appellant for service tax under the category of supply of tangible goods in terms of Section 65 (105) (zzzzj) of the Finance Act, 1994. The dispute arose from the appellant supplying 60 Railway Wagons to the Railways under an agreement dated 14.03.1996. The period in question was 2008-09 and 2009-10, with the Original authority confirming the liability of the appellant and imposing penalties under Section 78 and Section 77. The appellant contested the finding on two main grounds. Firstly, they argued that the wagons were supplied to Railways, who had full and effective control as per the agreement, making the tax liability legally untenable. Secondly, they contended that since the supply of wagons occurred in 1996 before the tax entry was introduced in 2008, there should be no tax liability. They relied on a Tribunal decision to support their argument.

The appellant's counsel argued that the supply of wagons in 1996, as per the agreement, happened before the tax entry was introduced in 2008, making any tax liability invalid. They also emphasized that the Railways had full control over the wagons as per the agreement, which should exempt them from tax liability. The appellant's position was supported by a Tribunal decision in a similar case. On the other hand, the ld. A.R. representing the respondent reiterated the findings of the Original Authority, stating that the control of the wagons by Railways did not absolve the appellant of tax liability. The respondent also highlighted the absence of any clause in the agreement regarding the appellant's liability to pay sales tax/VAT.

The Tribunal examined the arguments from both sides and reviewed the appeal records. They noted that the supply of wagons occurred in 1996 before the tax entry in 2008, rendering any tax liability baseless. Citing a previous Tribunal decision, the Tribunal emphasized that transactions involving tangible goods before the introduction of tax liability were not subject to service tax. They further clarified that the effective control of the wagons by Railways, as agreed upon, meant that the tax entry did not apply to the transaction. Therefore, the Tribunal held that the impugned order was unsustainable and set it aside, allowing the appeal in favor of the appellant.