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2024 (6) TMI 622 - AT - Service TaxLevy of service tax - transfer of right to use - freight rebate - Deemed sale - Revenue was of the view that the service provided under the said scheme by the appellant qualified as service and was taxable - HELD THAT - In the instant case it is no doubt that the rakes which the respondent has supplied to railways are clearly identifiable. Thus, the criteria a laid down by Hon ble Apex Court in the case of BSNL 2006 (3) TMI 1 - SUPREME COURT are satisfied. It is seen that the railways are entitled to use the rakes at their rake to the exclusion of any other party for the said period. There are no legal hindrances to railways in using the said rakes for any client whomsoever they wish to used it for. When the rakes are supplied to railways the said rakes are to be exclusively used by railways and no other party can claim any right to use at the same time. It is also apparent from the nature of transaction that having supplied the rakes to railways the respondents are precluded from giving the same rakes to anybody else for the period in the contract. From the above it is apparent that there is a transfer of right to use of railways rakes and therefore it would consist of deemed sale as described as under article 366 (29A) of the constitution. In the case of M/s. MSPL Vs. Commissioner of Central Excise Customs Belgaum 2022 (2) TMI 901 - CESTAT BANGALORE where it was held that ' the appellants have transferred the right of possession and effective control of the wagons leased out by them to the South Western Railways. The appellants have also discharged applicable VAT/Sales Tax on such transaction, therefore, the activity undertaken by the appellants does not constitute a taxable service of Supply of Tangible Goods .' The effective control and possession has been transferred to the Railways. In this circumstances the transaction would qualify as deemed sale under article 366 (29A) and therefore cannot be taxed as a service. Revenue has also sought to distinguish the decisions on the ground that the respondents have not paid VAT on the transaction. It has been argued that the property in goods remains with the respondents - The nature of transaction does not depend on the fact whether persons engaged in the transaction have paid relevant taxes or not. Just because the respondents have not paid VAT the nature of transaction does not change. When the facts indicate that possession and effective control has been transferred to the railways, the provisions of Article 366(29A) makes the transaction a deemed sale. At best state authorities can act to recover VAT. It does not give right to levy service tax. There are no merit in the appeal filed by the revenue, the same has dismissed.
Issues Involved:
1. Whether the supply of wagons under the Wagon Investment Scheme to Indian Railways constitutes a service liable to service tax. 2. Whether the transaction qualifies as a "deemed sale" under Article 366 (29A) of the Constitution, thus exempting it from service tax. Issue-wise Summary: Issue 1: Service Tax on Supply of Wagons - The Principal Commissioner CGST and Central Excise Raipur appealed against the dropping of demand for service tax, interest, and penalties against M/s. Bagariya Brothers Pvt Ltd. - The respondents provided wagons under the Wagon Investment Scheme to Indian Railways, which the Revenue viewed as a taxable service u/s 65B(44) of the Finance Act, 1994. - The original adjudicating authority confirmed the demand and imposed penalties, but the Commissioner (Appeals) set aside the order, leading to the Revenue's appeal. - The learned DR argued that the 10% freight rebate received by the respondent constitutes consideration for the provision of service, falling under the category of 'service being other than service specified in the negative list of services' in terms of section 66B of the Finance Act. - The DR pointed out that the respondents had not discharged VAT/Sales tax on the wagons, implying that the title of wagons remained with the respondent. - The DR contended that the Commissioner (Appeals) wrongly set aside the demand, arguing that the supply of guaranteed rakes and freight rebate is a return on investment, not a service. Issue 2: Deemed Sale under Article 366 (29A) - The tribunal examined whether the transaction constitutes a "deemed sale" under Article 366 (29A) of the Constitution, which would exempt it from service tax. - The tribunal referred to the Hon'ble Apex Court's decision in BSNL, which laid down criteria for a transaction to constitute a deemed sale as a transfer of the right to use. - The tribunal noted that all criteria laid down by the Apex Court were satisfied: goods were available for delivery, there was a consensus ad idem, the transferee had a legal right to use the goods, and the transferor could not transfer the same rights to others during the contract period. - The tribunal found that the rakes supplied to Indian Railways were identifiable and used exclusively by the railways, satisfying the conditions for deemed sale. - The tribunal cited previous decisions, including those in the appellant's own case and other similar cases, where it was held that such transactions constituted deemed sales. - The tribunal concluded that the effective control and possession of the wagons were transferred to Indian Railways, qualifying the transaction as a deemed sale under Article 366 (29A), thus not liable to service tax. - The tribunal dismissed the Revenue's argument that non-payment of VAT by the respondents changed the nature of the transaction, stating that the nature of the transaction is independent of tax payment compliance. Conclusion: - The appeal filed by the Revenue was dismissed. - The tribunal upheld the decision that the transaction qualified as a deemed sale and was not liable to service tax. (Order pronounced in the open Court on 07.06.2024)
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