2019 (2) TMI 1034 - AT - Service Tax

CENVAT Credit - input services - appellant have leased their wagons to Indian Railways on rental basis - supply of tangible goods service - February, 2013 to December, 2013 - Held that - The bare perusal makes it clear that for being taxable under the alleged category of supply of tangible goods, two conditions have necessarily to be fulfilled at the time when goods are supplied (1) Right of possession being delivered should not have been transferred; and (2) The effective control should not have been handed over. Also that the transfer of right to use the goods, delivery or supply of any goods, which is deemed to be sale within the meaning of clause 29 A of Article 366 of the Constitution of India shall not amount to be a service. Since appellant was using railways for most of the clearances of its final product i.e. cement and clinker, the appellant opted for the said scheme introduced by Railway in the year 1992 i.e. Own Your Wagon Scheme . In accordance of the scheme, irrespective the ownership of wagons could vest in the producers, but wagons were to be placed at the disposal of Railways. Not only this, those were to be merged in general pool of Railways. Also responsibility of day-to-day operation and maintenance would be that of Railways - not only the right of possession but the effective control upon railway wagons was meant to be transferred from the appellant to the Railways. Resultantly, the transaction herein comes out of the ambit of the supply of tangible goods service. The order under challenge has absolutely been silent qua this aspect. Commissioner has jumped-over upon clause 29 A of Article 366 of the Constitution denying the impugned transaction to be a deemed sale and has confirmed the liability under the supply of tangible goods service. The observation of Commissioner is held to have been restricted to the definition of service only without applying the definition of specific service under which the demand has been confirmed. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Whether the appellant is liable to pay Service Tax on the amount received for leasing wagons to Indian Railways.
2. Whether the demand confirmed by the Adjudicating Authorities is sustainable.
3. Whether the transaction falls under the category of supply of tangible goods service.
4. Whether the order under challenge correctly applied the legal provisions.

Analysis:
1. The appellant, engaged in manufacturing cement and clinker, availed Cenvat Credit on input services but did not discharge Service Tax on leasing wagons to Indian Railways. A show cause notice was issued proposing recovery of Service Tax, interest, and penalties. The initial confirmation of the proposal was challenged, leading to the current appeal.
2. The appellant argued that the demand was not sustainable, citing a Tribunal decision and the date of supply of goods. The Department justified the order, emphasizing findings on the transaction not being a deemed sale due to the absence of VAT payment.
3. The Tribunal analyzed the definition of supply of tangible goods service under the Finance Act, highlighting conditions for taxation and exclusions. The facts revealed that the appellant leased wagons to Railways under a scheme where possession and control were transferred to Railways, exempting the transaction from the service tax category.
4. Referring to previous Tribunal decisions, the current order was deemed unsustainable as it failed to consider the transfer of possession and control in the transaction. The Tribunal set aside the order, allowing the appeal based on the legal provisions and precedents cited.

This comprehensive analysis covers the issues involved in the legal judgment, detailing the arguments presented, the legal provisions applied, and the final decision rendered by the Tribunal.